Payrolling Benefits in Kind: What Finance Teams Need to Know

From 6 April 2027, UK employers must report taxable expenses, company cars, vans, car and van fuel, and medical benefits through payroll in real time. Most other benefits in kind follow from 6 April 2028. This guide explains what changes, what’s excluded, and the five steps to prepare.

The key facts

• Mandatory payrolling starts on 6 April 2027 for taxable expenses, cars, vans, fuel, and medical benefits, and on 6 April 2028 for most other benefits.

• Two categories are excluded: employment-related loans and living accommodation (you can still payroll them voluntarily).

• Class 1A NICs will be reported and paid in real time through payroll, not annually.

• Employees must receive an annual benefit statement by 1 June each year.

• Voluntary payrolling has been an option since 2016—you can register now to get ahead.

• Step one of preparation is a full inventory of every benefit your organisation provides.

What are benefits in kind—and why do they matter?

A benefit in kind is any non-cash perk or advantage provided to an employee (or their family members) by virtue of their employment. These benefits are separate from their salary. Not all benefits are taxable, but some can be subject to income tax and, in most cases, employer Class 1A National Insurance Contributions (NICs).

Common examples include:

• Company cars

• Private medical or dental insurance

• Gym memberships

• Interest-free or low-interest loans above £10,000

• A second mobile phone, or a personal phone contract paid by the employer

• Living accommodation provided by the employer

For finance teams, BIKs are a reporting and compliance obligation. The taxable value of each benefit needs to be calculated, declared to HMRC, and the appropriate tax and NICs must be accounted for. Under the current system, this has largely been handled through annual P11D and P11D(b) forms.

What are P11Ds?

A P11D is the annual form used to report taxable employee benefits to HMRC. P11D reporting is being replaced by mandatory payrolling in two phases: from April 2027 for taxable expenses, cars, vans, fuel, and medical benefits, and from April 2028 for most others.

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How BIK reporting currently works

At present, employers who have not registered for voluntary payrolling use P11D forms to report benefits in kind to HMRC. This is done at the end of each tax year. The key deadlines under the current system are:

• 6 July: P11D and P11D(b) forms must be submitted to HMRC

• 6 July: Employees must receive copies of their P11D

• 22 July: Employer Class 1A NICs must be paid electronically

P11D’s are mainly an end-of-year exercise. The benefit values are calculated retrospectively, employees receive updated tax codes from HMRC the following year, and any under (or over) deductions are resolved through the self-assessment or PAYE.

For most, it’s a familiar system. But the familiarity also comes with intense admin, particularly for bigger businesses with a variety of benefits on offer.

Employers who have already registered to payroll benefits voluntarily include the taxable value of benefits directly in employees’ monthly or weekly pay. Tax is deducted in real time through Pay As You Earn (PAYE), removing the need for a P11D for those benefits.

What changes in April 2027 and April 2028?

The UK government has confirmed that payrolling benefits in kind will become a mandatory practice. From 6 April 2027, you’ll be required to report and tax taxable expenses, company cars, vans, car and van fuel, and medical benefits through payroll in real time. Most other benefits follow from 6 April 2028. The Autumn Budget 2026 confirmed this timetable.

The official announcement and supporting guidance are published on GOV.UK.

Here’s a quick snapshot of the current processes and how they will change from April 2027:

What this means in practice

Once your benefits are in scope, you’ll need to:

• Calculate the estimated annual value of each employee’s benefits at the start of the tax year.

• Divide that value by the number of pay periods in the year (monthly, weekly, etc.).

• Add the relevant amount to each employee’s payslip as a non-cash addition, increasing the taxable pay figure.

• Deduct income tax through PAYE on that uplift each pay period.

• Report and pay both Income Tax and Class 1A NICs through payroll in real time, in line with HMRC’s current interim guidance.

• Provide employees with an annual statement of the benefits they have received.

Employees will no longer receive separate P11D forms for the affected benefits. Instead, tax on those benefits will be collected through their regular pay, reducing the risk of large, unexpected tax bills following end-of-year reconciliation.

Which benefits are excluded from payrolling benefits in kind?

Two categories of benefit are excluded from the mandatory payrolling requirement:

• Employment-related loans

• Living accommodation provided by the employer

These stay on the P11D unless you choose to payroll them. You can do that voluntarily from April 2027 by registering with HMRC before the tax year starts (by 5 April 2027 for 2027/28).

How does this affect expense management?

For many organisations, the mandatory move to payrolling benefits in kind sits at the intersection of payroll and expense management. The benefits most provided to employees (like company cars, private medical cover, health cash plans, gym memberships) are often tracked, valued, and reconciled through HR, benefits platforms, finance, or expense workflows.

In practice, the 2027 change turns BIK reporting from a once-a-year compliance task into an ongoing operational process that depends on clean, connected data. Taxable expenses are in the first phase, so from 6 April 2027 any expense payment that isn’t tax-free has to reach payroll in the period it’s paid. And, for finance teams, it becomes a more frequent data cycle. Where BIK values were previously calculated and declared only once a year, mandatory payrolling now requires figures to be confirmed at the start of each tax year and fed into the payroll on a per-period basis. That means if actual benefit values change during the year—for example, a car benefit changes mid-year—adjustments need to be made through payroll rather than via a corrected P11D.

Expense management software like Capture Expense can integrate directly with your payroll and accounting back-office systems, making sure that all your benefit and expense data flows to where it’s needed. And if your current software doesn’t, it might be a sign to start reviewing another provider.

Class 1A NICs: what’s changing?

Class 1A NICs—the employer-only NIC charge on most taxable benefits—are also changing under HMRC’s current interim guidance.

From April 2027 for taxable expenses and phase one benefits, and from April 2028 for most others, both Income Tax and Class 1A NICs will be reported through RTI and paid in real time via payroll.

This is a significant shift from the current annual Class 1A process and will have implications for payroll processing, reporting, and cash flow. Finance teams should factor this into their preparation plans, particularly where benefit values fluctuate during the year.

As HMRC guidance is still in draft form, you should continue to monitor updates ahead of April 2027.

Five steps for finance teams and business owners

The following steps provide a structured approach to preparing for mandatory payrolling of benefits in kind. They are relevant whether your organisation is starting from scratch or already payrolling some benefits voluntarily.

Step 1: Produce a full inventory of current benefits

You need a clear picture of what benefits your organisation provides, to whom, and at what value. This covers standard benefits, role-specific arrangements, director-level perks, and anything currently managed under a PAYE Settlement Agreement (PSA), which remains outside payrolling. Mark which benefits and expenses fall into phase one (April 2027) and which into phase two (April 2028), so you can plan the work in the right order.

Step 2: Assess your payroll system’s capability

Your payroll software will need to accept benefit value inputs, apply pro-rata calculations across pay periods, handle mid-year changes, and generate compliant annual employee benefit statements.

If your current payroll system does not support these functions, the time to address that is now, not in the weeks before the 2027 deadline.

Step 3: Review how benefit data is collected and managed

Payrolling requires accurate benefit values at the start of each tax year, with a clear process for updates when values change. In practice, this means HR confirming estimated annual values, finance verifying costs with suppliers, and a defined route for communicating mid-year changes. Where expense management software is involved in tracking benefit costs, integrating that data with payroll becomes a more important operational step.

Step 4: Communicate with your teams

Employees will see a non-cash benefit addition on their payslip, increasing their taxable pay and the tax deducted. Ahead of any transition, make sure they understand which benefits are being payrolled, how it will appear on their payslip, and why their tax deduction may change. After the transition, you are also required to provide each employee with an annual benefit statement by 1 June each year.

Step 5: Monitor HMRC guidance

HMRC will release further technical guidance as April 2027 approaches. The HMRC Employer Bulletin is the primary source for updates and should be reviewed regularly.

Start your preparation now—April 2027 is closer than it looks

Mandatory payrolling of benefits in kind is a significant change to an established compliance process. For finance teams and business owners, the April 2027 deadline is one that requires systems, data, and internal processes to be aligned well before the date arrives.

Having the right tools in place to manage, reconcile, and report on employee benefits will be a material advantage as the deadline approaches. And Capture Expense is just that. Capture Expense integrates with payroll and accounting back-office systems to deliver the real-time benefit data flows that mandatory payrolling requires—connecting with back-office systems so your benefit and expense data reaches the right place, at the right time.

Book a demo with our team to find out more about how we can help you get prepared ahead of April 2027.