Mandatory Payrolling of Benefits-in-Kind from April 2026: What Employers Need to Know

On 16 January 2024, HMRC announced plans to mandate payrolling benefits-in-kind (BIKs), set to begin in tax year 2026/27. After an extended period of uncertainty, the October 2024 Autumn Budget confirmed that this transition will take place in a phased approach, affecting both income tax and Class 1A National Insurance contributions (NICs).

This article explores the upcoming changes, what they mean for employers, and the key considerations businesses need to prepare for.

Understanding Payrolling of Benefits-in-Kind (BIKs)

Payrolling BIKs means that taxable benefits—such as company cars, private medical insurance, and gym memberships—are reported and taxed through the payroll system in real time, rather than being submitted via the traditional P11D process at the end of the tax year.

Under the new system, employers will need to process and tax BIKs monthly, ensuring that tax and Class 1A NICs are collected via PAYE remittances.

Example: Payrolling a Medical Benefit

Roger receives a medical benefit worth £3,000 per year from his employer. He is paid monthly, meaning that:

• £250 (£3,000 ÷ 12) will be added as a notional taxable amount to his salary each month.
• Income tax will be deducted immediately via payroll.
• Class 1A NICs will be calculated and paid monthly instead of annually.

Key Announcements from the October 2024 Budget

The October 2024 Autumn Budget confirmed that payrolling of BIKs will:

• Become mandatory from April 2026.
• Be introduced in phases (with exceptions for employment-related loans and accommodation).
• Apply to income tax and Class 1A NICs.

This means that, from April 2026, taxable values of most BIKs must be processed via payroll, with employment-related loans and accommodation following later.

HMRC Guidance on Payrolling Benefits-in-Kind

HMRC Concessions for Employers

Following discussions with businesses and payroll professionals, HMRC has introduced two key concessions to help businesses transition:

Reduced Penalties in 2026/27:

• Employers will not face automatic penalties during the first year of mandatory payrolling.
• HMRC will monitor compliance but offer leniency as businesses adjust.

End-of-Year Adjustments:

• HMRC will introduce an “end-of-year correction process” to amend payroll errors.
• This replaces the traditional P11D process but ensures corrections can still be made.

 While details remain unclear, this suggests a “P11D by payroll” approach, enabling corrections without needing separate forms for each employee.

Implications for Employers

Benefits of Payrolling BIKs

Real-time tax deduction – Employees pay tax on benefits as they receive them, reducing tax bill shocks.
Eliminates the P11D process – No more annual P11D forms for most benefits.
Improved payroll accuracy – Reduces underpayments and overpayments of tax.
Greater transparency for employees – BIKs will appear directly on payslips.

Challenges to Consider

Monthly Class 1A NICs – Employers must calculate and pay Class 1A NICs each month instead of at year-end.
Increased reporting requirements – Employers must break down benefit values per employee, per pay period.
Employee communication – Employees must understand that their benefits are taxed monthly instead of annually.
Software & payroll adjustments – Employers must ensure payroll systems can handle BIK taxation in real-time.

What Employers Need to Do to Prepare

To ensure a smooth transition to mandatory BIK payrolling from April 2026, employers should start preparing now:

Review Existing Benefits-in-Kind

• Identify which benefits are currently reported via P11D.
• Assess which benefits can be transitioned to payroll in advance.

Upgrade Payroll Software

• Ensure your payroll system supports real-time BIK reporting.
• Work with payroll providers or accountants to test the changes.

Train Payroll & HR Teams

• Payroll and HR staff must understand how to process BIKs through payroll.
• Consider attending HMRC training sessions or working with a payroll consultant.

Communicate Changes to Employees

• Inform employees how their benefits will be taxed from April 2026.
• Provide payslip breakdowns so employees understand their post-tax pay.

Monitor HMRC Updates & Compliance Guidance

• Keep track of new HMRC policy papers.
• Ensure compliance with new payroll processing rules.

Need expert payroll guidance? Contact Merranti Accounting today to ensure your business is fully prepared for HMRC’s BIK payrolling mandate.

Conclusion

The move to mandatory payrolling of benefits-in-kind from April 2026 represents a major shift in how employee benefits are taxed and reported.

From April 2026, all taxable benefits (except loans & accommodation) must be payrolled.
Employers will calculate Class 1A NICs in real-time and pay them monthly.
P11D forms will be replaced by payroll reporting, with an end-of-year correction process.

To avoid penalties and compliance risks, businesses must act now by reviewing payroll systems, training staff, and preparing for real-time BIK processing.

HMRC Guidance on Payrolling Benefits-in-Kind

Get ahead of the changes! Contact Merranti Accounting today for expert payroll and tax compliance support.