As part of HMRC’s push towards ‘Making Tax Digital’, important changes are coming for the reporting requirements of Benefits in Kind (BiKs) – and you absolutely need to take note. Following feedback from stakeholders, HMRC have recently announced that the original April 2026 deadline has now been extended by a year, with mandatory payrolling of BiKs coming into effect from April 2027. From this date, all Benefits in Kind (except employment-related loans and accommodation) will have to be reported via payroll. Much like the wider aims of ‘Making Tax Digital’, the aim of this is to simplify the reporting process and enhance transparency and compliance for UK employers.
Background
As it stands, disclosing benefits in kind paid to employees/directors involves the submission of forms P11D at the end of the tax year – meaning disclosure is made in arrears. This puts the onus on HMRC to process the forms, adjust PAYE coding notices, and collect tax due on the benefits that arise in future tax years.
An alternative process saw employers calculate the benefits in kind in advance and deduct the tax due at source, via a payroll deduction. This method doesn’t rely on a tax code from the Inspector of Taxes and effectively shifts the responsibility to collect the right amount of tax to the employer. It’s this method that will become mandatory for all employers, from April 2027.
Impact on payroll
Whilst this will hopefully avoid errors with coding notices – a potential issue faced by employers in the past – it does mean that payroll teams need to process any commencement and cessation of benefits in good time to ensure that the correct tax is paid in-year. Any excess or shortfall will need to be rectified before the end of the tax year or as soon as possible thereafter, but these corrections could result in an unexpected payroll amount for employees.
How we’re assisting clients
Foxley Kingham are keeping tabs on the new legislative requirements (some of which are still to be finalised) before the 6 April 2027 due date. As always, we’ll take a proactive approach, working closely with our payroll clients well ahead of the 2027 implementation date. Our focus will be to ensure the transition to the new regime is seamless and communication channels are in place to ensure the correct amounts are calculated and paid.
The new regime will undoubtedly add a layer of complexity, especially in the transitional year, and could give rise to questions from staff. It could also result in additional software requirements if your current software doesn’t deal with this element. If you don’t currently use our payroll services but would still like advice and guidance – we’re happy to support.
For those with their own payroll provider, they should be in touch with you to confirm if they can deal with the additional requirements. We would recommend making contact with them in good time, as to how their procedures will change, when the new regime commences.
If your employees currently receive benefits in kind or will do in the future, it would be sensible to review procedures now. This will help you to identify potential issues and remedy them to ensure compliance with the legislation.
If you’d like our advice, guidance, or overview of our comprehensive payroll services – we’d be delighted to have a chat.