Mandatory Payrolling of Benefits in Kind – Delayed until April 2027

HM Revenue & Customs (HMRC) have a long-term plan to simplify and modernise the tax system, this includes the mandatory payrolling of benefits-in-kind.

Benefits-in-kind have been able to be payrolled on a voluntary basis since April 2016, however the mandatory payrolling of benefits, which was originally due to start from April 2026, has recently been pushed back until April 2027.

Once this comes into effect P11D reporting as we know it will change significantly.

What is a benefit-in-kind?

A benefit-in-kind is remuneration received by an employee or director which is in the form of a benefit rather than a cash payment.

The most common examples are the provision of private medical insurance and company cars.

How will the reporting change?

Currently forms P11D and P11D(b) are prepared at the end of the tax year, collating the value of benefits-in-kind received during the preceding year and reported to HMRC by 6 July. The Class 1A NI is then paid to HMRC by the 22 July.

From April 2027 taxable benefits will be need reported to HMRC in real time through the FPS (full payment submission) made via the payroll software following the end of each pay period. This is the same method employers currently use to report salaries and other employee details to HMRC under RTI.

For fixed benefits, such as private medical insurance, the annual cash equivalent of the benefit will be split by the number of pay periods in the year (so typically 12 if it’s a monthly payroll) and that amount is then taxed each month enabling both income tax and Class 1A NICs to be reported in real time.

Many larger employers already operate in this way, but it will be a significant change for smaller businesses.

Difficulties with reporting

There may be circumstances where the value of the benefit-in-kind, or that fact one even exists, is not known until sometime after the employee has first received a benefit. In this instance the full value of the benefit should be reported over the remaining pay periods of the tax year. There would be no requirement to amend earlier submissions.

There are also situations where HMRC recognise the cash value of the benefit will not be known until after the end of the tax year, for example employment-related loans and provision of accommodation. In this instance HMRC suggest using a ‘reasonable estimate’ for the value of the benefit during the tax year. Any over/under payments of tax using the ‘reasonable estimate’ calculation would then be reported using the BIKs update process, which follows the traditional filing deadlines of P11Ds.

Where an employee or director does not receive any employment income, the employer will still be required to report details of any benefits-in-kind in the same was as those receiving a salary via the FPS.

Cashflow impact for employees

Under the real time reporting of benefits-in-kind there can be a situation whereby underpayment of tax from an earlier year is being collected through an employee’s tax code, alongside the current years benefits being reported under real time.

Where this is causing financial difficulty, employees can ask HMRC to spread the underpayment over more than one tax year.

Penalties and interest

As part of the soft-landing transition process, employers who have made an error on their mandatory reporting RTI returns during the 2027/28 tax year will not be charged penalties or interest unless there is evidence of deliberate non-compliance.

The future

HMRC have confirmed they will retain forms P11D and P11D(b) for employment related loans and accommodation for the time being, however a mandatory payrolling timeline for all benefits will be provided in due course.

If you would like any assistance with the preparation of P11D or guidance in relation to the payrolling of benefits please do contact Perrys.