Payrolling Employee Benefits
Your Guide to Payrolling Benefits in Kind 📘
What Employers Need to Know for April 2027
Overview
From 6 April 2027, HMRC will require most benefits in kind (BiKs) and taxable employment expenses to be reported and taxed through payroll under RTI (Real Time Information).
This means Income Tax and Class 1A NICs will be collected in real time, rather than at the end of the tax year via forms P11D and P11D(b).
The change marks one of the biggest modernisations in PAYE administration.
✅ What Is Payrolling Benefits?
At present, most benefits are reported after the tax year on form P11D, with Class 1A NICs declared on P11D(b).
From April 2027:
- Employers will add the taxable value of most benefits into pay as part of the Full Payment Submission (FPS).
- HMRC will expand FPS fields to capture data currently submitted on P11D/P11D(b).
- Income Tax and Class 1A NICs will be processed in year through payroll.
This removes the need for most year-end P11D reporting.
📊 Benefits That Must Be Payrolled (from 2027)
| Benefit | Description | Example |
|---|---|---|
| Company Cars | Taxable value of company vehicles | Car available for business and private use |
| Fuel for Private Use | Private mileage paid by employer | Fuel card covering personal journeys |
| Private Medical Insurance | Employer-funded healthcare | Bupa policy for managers |
| Gym Memberships | Employer contribution | Gym subsidy under wellbeing programme |
| Assets Available for Private Use | Items used personally | Tablet or TV used at home |
| Non-Cash Vouchers | Gift cards or store credits | £200 gift card as reward |
🔍 Benefits Temporarily Outside Mandatory Payrolling
HMRC will retain P11D/P11D(b) for these items at first:
| Benefit | Description |
|---|---|
| Employer-provided accommodation | Housing supplied to an employee |
| Beneficial (cheap) loans | Interest-free or low-interest loans over £10,000 |
You can still choose to voluntarily payroll these benefits from April 2027, but registration must take place before the start of the tax year. HMRC will confirm when they become mandatory.
Some niche cases (for example, certain globally mobile employees) may continue to use modified PAYE.
✅ Benefits That Remain Exempt
You do not payroll or report exempt BiKs if all conditions are met, such as:
| Exempt Benefit | Example |
|---|---|
| Trivial benefits | Occasional non-cash gifts under £50 |
| Staff canteen meals | Free or subsidised meals for all employees |
| Workplace parking | Parking at or near the office |
| Work-related training | Job-related courses |
| Employer-provided childcare (legacy) | Nursery or vouchers issued before Oct 2018 |
💡 Do P11Ds and P11D(b) Disappear?
From April 2027:
- Most BiKs will be payrolled only – no P11D forms.
- Class 1A NICs will be calculated in-year through RTI.
- Where values cannot be finalised during the year (for example, fuel cards or loans), HMRC will run a post-year-end update. Any extra Class 1A NICs must be paid by 22 July after year-end.
- P11D/P11D(b) will continue temporarily for accommodation, loans, and specific cases until later phases of mandation.
📅 Registration Timeline
| Period | Action Required |
|---|---|
| Now – 5 April 2026 | Voluntary payrolling continues as now. You must register before the start of the tax year. Loans and accommodation cannot yet be payrolled. |
| After 5 April 2026 | HMRC will close voluntary registration as it prepares for full mandation. |
| From 6 April 2027 | No registration needed for most BiKs. HMRC will remove benefits from employee tax codes automatically. |
| Loans & Accommodation (2027/28) | Separate voluntary registration expected to open in Nov 2026, closing before the 2027/28 year-start. |
📊 Employee Communication and Payslips
Employers must provide employees with an annual statement by 1 June after year-end showing:
- Which benefits were provided.
- Which were payrolled.
- The taxable values.
HMRC will not require BiK details on payslips, but some payroll systems may display them.
Employees will also see benefits in their Personal Tax Account or the HMRC app.
🔗 HMRC: Payrolling Employee Benefits – Guidance
💡 The 50 Percent Overriding Limit
You must not deduct more than 50 percent of an employee’s cash pay for tax in any pay period.
If this limit is reached, you must:
- Carry forward any unpaid tax to later pay periods in the same tax year.
- Allow HMRC to collect any remaining balance after year-end through the employee’s Self Assessment or a P800 notice.
⚙️ Penalties and HMRC’s Approach in 2027/28
- HMRC will not charge inaccuracy penalties for payrolling errors in 2027/28 unless deliberate.
- Standard RTI late filing and late payment penalties still apply.
- Where the BiK update process is used, any extra Class 1A NICs must be paid by 22 July following the tax year.
💼 What Employers Should Do Now
1. Review Current Benefits
List all benefits and expenses, identify who provides data (HR, fleet, insurers), and note when values become available.
Flag benefits likely to require estimates or post-year updates (for example, fuel cards, loans, or accommodation).
2. Check Payroll Software
Ensure your system will support:
- New FPS fields for BiK data.
- In-year Class 1A NIC calculations.
- 50 percent cap carry-forward handling.
- Year-end statements and leaver scenarios.
HMRC has confirmed that Basic PAYE Tools will also be updated.
3. Consider Voluntary Payrolling Before 2026/27
You can still voluntarily payroll most benefits until April 2026 (registration required before the tax year).
This can help your team and systems adapt ahead of full mandation.
4. Communicate With Employees
Prepare to explain:
- The shift to real-time taxation.
- The annual statement by 1 June.
- The 50 percent cap.
- How to view benefits in their HMRC Personal Tax Account.
💡 Key Takeaway
The 2027 reforms will simplify employer reporting and improve accuracy, but they will also require early preparation.
Start reviewing your benefit data flows, software, and communication plans now so that you’re ready for seamless compliance when RTI payrolling becomes mandatory.