Benefits in Kind (BiKs) are extras that employers provide to staff in addition to their wages. These benefits often have a tax cost. Common examples include company cars, private medical cover, and other workplace perks. Many benefits are reported to HMRC after the tax year ends. This can lead to mistakes and unexpected tax bills for employees. To fix this, HMRC is changing how benefits are reported.
Mandatory payrolling means employers must report most Benefits in Kind through payroll. Tax on these benefits will be taken in real time, alongside normal pay. This helps make taxes more precise, more accurate, and easier to manage for both employers and employees.
What Is Mandatory Payrolling of Benefits in Kind?
Mandatory payrolling requires employers to report most Benefits in Kind through their payroll systems. Instead of reporting benefits at the end of the tax year, the information is sent to HMRC as part of the normal payroll process. Payrolling BiKs through RTI means the value of each benefit is included in Real Time Information (RTI) submissions. This happens every time employees are paid. Tax on the benefit is taken at the same time as PAYE, just like wages.
This is different from the P11D process. Under P11D reporting, benefits were sent to HMRC after the tax year had finished. Employees often saw changes to their tax code later, which could cause confusion or extra tax to pay. With mandatory payroll, this delay is removed. HMRC is moving to real-time reporting to make tax more accurate and easier to understand. Employees can see tax on their benefits on their payslips, and employers no longer need to complete most year-end benefit forms. This helps reduce errors and keeps tax records up to date throughout the year.
When Does Mandatory Payrolling Start?
Mandatory payrolling of Benefits in Kind is planned to start from April 2026. From this point, most employers will need to report taxable benefits through payroll rather than using the P11D process at the end of the year. Although the start date is confirmed, HMRC understands that this is a significant change for employers. That is why businesses are being encouraged to prepare well in advance. This gives payroll teams time to review current benefits, update systems, and ensure reporting is accurate.
HMRC has also said there will be transitional arrangements to help employers adjust. Guidance, updates, and support will be provided before the rules take effect. During the early stages, HMRC is expected to take a supportive approach as employers get used to the new reporting process. Starting preparation early will help avoid mistakes, reduce pressure closer to the deadline, and make the move to mandatory payrolling much smoother.
How Mandatory Payrolling Works in Practice
Mandatory payrolling, taxable benefits are reported through your payroll software, not at the end of the tax year. Each benefit is added to payroll so tax can be taken at the right time. Benefits are reported to HMRC using Full Payment Submissions (FPS). This is the same system already used to report wages. The value of the benefit is included each time employees are paid, alongside their normal salary details.
Sometimes, the exact value of a benefit may not be known at the start of the year. In these cases, employers can use a reasonable estimate. This allows payroll to continue without delay while keeping tax reporting up to date. If the value of a benefit changes later, employers can make in-year adjustments. These corrections are sent through payroll as soon as the correct information is available.
How employers can prepare for Benefits in kind
Preparing early will make the move to mandatory payrolling much easier. Employers do not need to change everything at once, but taking small steps now can prevent problems later. Start by reviewing your current employee benefits. Make a clear list of all benefits you provide and identify which ones are taxable. This helps you understand what will need to be included in payroll in the future.
Next, check whether your payroll system is ready. Not all payroll software handles Benefits in Kind in the same way. Make sure your system can report benefits through RTI and manage regular updates without errors. If needed, update your payroll software. This may involve switching to a system that supports mandatory BiK payrolling or upgrading your existing setup. Doing this early avoids pressure closer to the deadline.
Finally, seek professional support if required. Payroll and tax rules can be complex, especially for businesses offering multiple benefits. Getting advice from a payroll or compliance specialist can save time, reduce risk, and ensure everything is set up correctly from the start.
Make Mandatory Payrolling Simple for Your Business
Mandatory payrolling of Benefits in Kind is not just a small change – it is a significant update that affects how UK employers report and manage employee benefits. If you offer company cars, private medical insurance, or any other taxable perks, it’s essential to act now. Waiting until the last minute can create unnecessary stress, errors, and potential penalties from HMRC.
Real-time payrolling ensures correct tax deductions every month, clear payslip information, and simpler year-end reporting. It reduces errors, saves time, and keeps your business compliant. We understand that for many employers, especially small and medium-sized businesses, this change can feel complicated. That’s where we come in. Book a free consultation specialise in helping companies like yours navigate payroll changes smoothly and confidently.
