Compliance
Navigating Mandatory Payrolling of Benefits in Kind: What Employers Need to Know
From April 2027 UK employers will be required to report most benefits in kind through payroll under the mandatory payrolling regime — here’s a detailed guide with examples and tips to prepare.
By NomadicTax Research Team • 5-8 min read • February 20, 2026
## What is Mandatory Payrolling of Benefits in Kind?
Starting **6 April 2027**, most Benefits in Kind (BiKs) and expenses provided by employers must be reported in real time through payroll software under the UK government’s updated regulations. ([gov.uk](https://www.gov.uk/government/publications/reporting-and-paying-income-tax-and-class-1a-national-insurance-contributions-on-benefits-in-kind-in-real-time-an-update/technical-note-mandating-the-reporting-of-benefits-in-kind-and-expenses-through-payroll-software-an-update?utm_source=openai)) Previously, many non-cash benefits were reported after the tax year ended via P11D and P11D(b) forms; this regime shifts most reporting into the tax year itself. ([gov.uk](https://www.gov.uk/government/publications/reporting-and-paying-income-tax-and-class-1a-national-insurance-contributions-on-benefits-in-kind-in-real-time-an-update/technical-note-mandating-the-reporting-of-benefits-in-kind-and-expenses-through-payroll-software-an-update?utm_source=openai))
### Key Changes Effective from April 2027
| Area | Change | Exceptions & Transition | First Action Date |
|------|--------|---------------------------|-------------------|
| Reporting method | Full Payment Submission (FPS) through payroll software for BiKs (excluding certain loans and living accommodation initially) | Loans and accommodation remain P11D reportable initially; voluntary registration required for early adoption. ([gov.uk](https://www.gov.uk/government/publications/reporting-and-paying-income-tax-and-class-1a-national-insurance-contributions-on-benefits-in-kind-in-real-time-an-update/technical-note-mandating-the-reporting-of-benefits-in-kind-and-expenses-through-payroll-software-an-update?utm_source=openai)) | Registration for voluntary payrolling of most BiKs ends **5 April 2026**. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))|
| Penalties and Interest | Existing late submission/payment penalties apply, adjusted for the real-time reporting schedule. | For first year, no penalties on returns where interim guidance was followed in good faith. ([gov.uk](https://www.gov.uk/government/publications/reporting-and-paying-income-tax-and-class-1a-national-insurance-contributions-on-benefits-in-kind-in-real-time-an-update/technical-note-mandating-the-reporting-of-benefits-in-kind-and-expenses-through-payroll-software-an-update?utm_source=openai)) | Real-time reporting begins 6 April 2027. |
## Why this Matters — What Employers Should Do Now
- Review current payroll systems and software: Ensure that your payroll provider or software can send FPS reports including non-cash benefits, estimate values when required, and adjust for late or complex benefits. If necessary, upgrade or adapt your systems in advance of April 2027. ([gov.uk](https://www.gov.uk/government/publications/reporting-and-paying-income-tax-and-class-1a-national-insurance-contributions-on-benefits-in-kind-in-real-time-an-update/technical-note-mandating-the-reporting-of-benefits-in-kind-and-expenses-through-payroll-software-an-update?utm_source=openai))
- Register early if you’ll use voluntary payrolling in 2026-27 for BiKs allowed in that window. Missed registration means waiting for mandatory framework. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
- Train payroll staff and communicate with employees: Estimates and year-end reconciliations will matter. Ensure staff understand valuation of benefits, CO2 emissions for cars, fuel usage, accommodation rules etc. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
- Prepare for exceptions (loans and accommodation): These remain outside mandatory payrolling initially, so expect continued P11D reporting and/or adjustments until legislation captures them. ([gov.uk](https://www.gov.uk/government/publications/reporting-and-paying-income-tax-and-class-1a-national-insurance-contributions-on-benefits-in-kind-in-real-time-an-update/technical-note-mandating-the-reporting-of-benefits-in-kind-and-expenses-through-payroll-software-an-update?utm_source=openai))
## Practical Examples
- **Company Car Benefit**: Under current system, employees receiving company cars must have CO2, registration date, fuel type reported in P11D. From April 2027, their taxable benefit will be included in FPS each payroll, requiring estimates in earlier months and final reconciliation. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
- **Free Annual Workshop Ticket (non-cash award)**: If an employer gives vouchers or access to a service, it’s subject to tax/NICs. Under the new scheme, this will need to be included via payroll, not just via annual P11D reporting. Employers may use a Taxed Award Scheme (TAS) in specific cases until full rules take effect. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
## Action Checklist
- ✅ Audit all current BiKs & benefits: list which ones are eligible for voluntary payrolling in 2026-27 and which ones will become mandatory in 2027.
- ✅ Confirm your payroll software's compatibility with the new FPS reporting requirements.
- ✅ Register for voluntary payrolling before **5 April 2026** if applicable.
- ✅ Estimate values of benefits & gather historic data to assist year-end reconciliation.
- ✅ Adjust internal policies around loans & accommodation benefits ahead of them being mandated.
## Bottom Line
Mandatory payrolling of benefits in kind marks a significant shift in how employer benefits are taxed and reported. By preparing early — updating systems, training staff, registering voluntarily if useful — employers can reduce compliance risks, avoid penalties, and ensure smooth transition into the new regime.