Compliance

Preparing Employers in the UK for Mandatory Payrolling of Benefits in Kind

With HMRC introducing mandatory payrolling of benefits in kind (BiKs) starting in 2027-28 for most employers, it’s crucial for businesses and payroll professionals to start preparing now.

By NomadicTax Research Team • 5-8 min read • March 11, 2026

## What Employers Need to Know HMRC has confirmed that **starting in the 2027-28 tax year**, employers will be required to **payroll most Benefits in Kind (BiKs) and related expenses**. This was announced in the *Employer Bulletin* in February 2026.([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai)) ### Key Features: - The change affects most employers, who currently may already voluntarily payroll some benefits. - Interim guidance and technical specifications have been released to help with preparation.([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai)) - From April 2026, PAYE tax codes will be automatically adjusted for customers needing to repay winter payments through PAYE. While this is separate, it shows HMRC is actively using its PAYE system to manage payments and changes to income.([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai)) --- ## Why This Matters: Compliance & Strategy ### For Employers: - BiKs include things like loans on favorable terms, employer-provided accommodation, or company cars. - Payrolling means tax is deducted via payroll, simplifying end-of-year reporting for both employer and employee—but it also requires accurate, real-time tracking of benefits. ### For Employees: - More regular tax deduction from benefits rather than large lump sums at year-end. - Greater transparency, though there may be cash-flow differences depending on benefit type. --- ## How to Prepare Strategically ### 1. Audit Benefit Inventory List out all current BiKs and assess whether they have already been included in payroll or managed separately. ### 2. Update Systems & Software Ensure payroll and HR systems can handle tracking and valuation of benefits to feed into payroll. Be ready for mandatory reporting and likely increased employer-admin requirements.([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai)) ### 3. Review Policies on Loans & Accommodation These often have complexity—especially valuation, employee contribution, and tax implications. Interim guidance points out these areas may have distinct rules moving forward.([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai)) ### 4. Communicate Clearly Ensure all affected employees understand how their tax take-home might change when benefits move to the payroll. Also, train payroll and HR staff on updated guidance. --- ## Example *A UK employer currently provides staff with company loans at low interest. Currently, staff must settle large tax bills at the end of year based on benefit valuation.* Under mandatory payrolling, the employer will begin deducting tax each pay period based on a valuation of that loan. Employees may see smaller take-home pay each month but avoid large, unexpected end-of-year tax bills. --- ## Action Checklist Before 1 April 2026 | Task | Responsible Party | |---|---| | Inventory all BiKs and determine current treatment | HR / Payroll | | Assess payroll system capability | IT / Payroll Software | | Review guidance and published specifications | Tax & Legal Teams | | Plan communication to staff | HR / Employee Relations | Being proactive can reduce surprises for both employers and employees when this change comes into effect in 2027-28.