Compliance
Compliance Essentials: Preparing for Mandatory Payrolling of Benefits-in-Kind from April 2027
Employers need to act now: new legislation mandates payrolling benefits in kind (BIK) starting 6 April 2027 — here’s what that means and how to get ready.
By NomadicTax Research Team • 5-8 min read • September 4, 2026
## What’s Changing?
- The UK government is introducing draft legislation to **mandate payrolling of benefits in kind** for employers from **6 April 2027**. This is part of reforms aimed at modernising the tax system and improving how benefits are reported. ([hansard.parliament.uk](https://hansard.parliament.uk/Commons/2026-07-13/debates/26071334000012/FinanceBill2026-27DraftLegislationAndTaxDocuments?utm_source=openai))
## Who Will Be Affected?
- **Employers of all sizes** who currently report BIKs annually via P11D forms or self-assessment.
- **Employees receiving benefits** such as a company car, private health insurance or other perks currently taxed outside payroll.
## What Employers Must Do
- **Integrate BIKs into payroll**: adjust payroll systems to account for taxable benefits month by month rather than after the end of the tax year.
- **Communicate with payroll & HR teams**: identify benefits currently reported via P11D, agree valuation, timing, and how to report them.
- **Train staff or use software**: make sure payroll systems can handle new deductions and changes to PAYE withholding for BIKs.
- **Update contracts and documentation**: ensure that terms of employment reflect that some benefits will be taxed via payroll.
## Practical Timeline
| Time | Action |
|------|--------|
| **Now – late 2026** | Audit existing benefits, identify those reported under P11D; liaise with software providers for payroll capability. |
| **Early 2027** | Test payroll runs including BIK deductions; communicate with affected employees. |
| **6 April 2027** | New rules take effect—ensure monthly payroll deductions include BIKs. |
## Example Case Studies
- *Case A – Small business (50 employees)*: Currently reports all company car perks via P11D. Needs to adjust payroll software, verify vehicle lists, and calculate correct BIK values monthly. Failing to do so may lead to underpayments or penalties.
- *Case B – Large employer with many non-cash perks*: For staff receiving subsidised loans, private insurance, or accommodation, all these must be valued and paid via payroll. Employee communication will be key to avoid surprises on net pay.
## Risks & Penalties
- **Under-reporting or late deductions** could lead to penalties, interest, or HMRC enquiries.
- Employees may experience **unexpected drops in take-home pay** if not informed in advance.
## Key Takeaways
- From **6 April 2027**, BIKs must be payrolled — no more relying solely on P11D after year-end.
- Employers should **start auditing now**, upgrading systems, training staff and communicating clearly with employees.
- Proper planning will smooth the transition and avoid penalties.