HMRC: mandatory payrolling of benefits in kind starts on 6 April 2027

HM Revenue & Customs (HMRC) has published guidance on how employers should prepare for mandatory payrolling of benefits in kind (BiKs). The new system is due to start on 6 April 2027. The date was earlier pushed back from April 2026 to give businesses more time.

Which benefits are covered

Company cars, car fuel, vans, van fuel and private medical benefits will have to be payrolled. Employers do not need to register to do this.

Employment-related loans and accommodation are not covered by the requirement. Employers can still payroll them voluntarily, but must register first. The registration service is due to go live in November 2026, and the deadline to register is 5 April 2027.

Tax codes and tax paid "in the same year"

HMRC will itself remove BiKs from employees' tax codes before 6 April 2027. Tax on benefits will then be paid in real time, in the year they are received, rather than in arrears. Some people currently have a deduction in their tax code based on an estimated value of the benefit, and this will no longer apply from April 2027.

HMRC stresses that underpayments from earlier years will not disappear from tax codes. Employees can also pay them off themselves, for example through their personal tax account, or by cheque or postal order if they have received a P800. As a result, some people may feel they are paying tax twice: current and past. HMRC advises employers to explain this clearly. Anyone facing hardship because of this should contact HMRC.

What employers should do

HMRC recommends, among other things:

• listing the benefits that were previously reported on form P11D,
• checking that payroll software can handle real-time reporting,
• planning how to handle joiners and leavers during the year and changes in the value of benefits,
• training HR and payroll teams.

Businesses should also allow for a temporary cash-flow burden. In July 2027 they will still have to pay Class 1A National Insurance contributions for the 2026/27 tax year under the old rules, while also starting to pay them in real time for benefits provided from April 2027.

HMRC's own software, Basic PAYE Tools, will be updated to handle the new rules.

No penalties for errors

HMRC will not charge penalties for errors related to mandatory payrolling in RTI returns for the 2027/28 tax year, unless there is evidence of deliberate non-compliance. Penalties and interest for late returns or late payments may still apply.

What this means for you

The change affects employees who receive, for example, a company car, fuel, a van or private medical insurance from their employer. From April 2027 they may notice a change in their tax code and take-home pay. It is worth checking messages from your employer and your tax code. Business owners with employees should start preparing early.