Payrolling benefits in kind: new timeline
From an employer’s perspective, the change means most benefits in kind must be reported under Real Time Information (RTI) from April 2027. Income Tax and Class 1A National Insurance contributions (NICs) will also be paid during the tax year. To make the system work, the number of RTI data fields will be increased to accommodate data currently reported in forms P11D and P11D(b).
Employment-related loans and accommodation are not yet brought within mandatory payrolling. The P11D and P11D(b) process will continue temporarily for these benefits, though it will be possible to payroll them on a voluntary basis. Employers need to register in advance to do this, and to payroll for the tax year starting 6 April 2027, you would need to register between November 2026 and 5 April 2027.
The taxable value of a benefit in kind will be calculated by taking the annual cash equivalent of the benefits, and dividing by the number of relevant pay periods for each employee. The resulting figure for each pay period is liable to Income Tax and Class 1A NICs each pay period, and must be reported alongside employee earnings in each period. A reasonable estimate must be used where the benefit in kind value is not known at the start of the year.
Other areas that HMRC has specifically commented on include:
- Globally mobile employees that are part of modified PAYE arrangements. Here HMRC is considering keeping the P11D and P11D(b) processes.
- Employees and directors receiving no income. Here the employer will still need to provide details of benefits in kind and expenses via an FPS, paying Class 1A NICs due in the same way as for employees receiving income. The FPS will show no payments of earnings and no tax paid. Any uncollected tax will be recovered through the P800 end of year reconciliation process, simple assessment or self assessment as applicable.
From the employee’s perspective, payment of tax moves into real time, and it will be important for employers to communicate this effectively to staff. In the first year of mandation, there could be an additional cash flow impact for any employees already having tax deducted in respect of a previous year.
Further information is expected from Autumn 2025 onwards, but in the meanwhile, you might want to consider payrolling benefits voluntarily in 2026/27, to see how the system works. To do this, advance registration is needed, and we are happy to advise on this, or any other steps required to prepare for the change.
