Compliance
Preparing for Mandatory Payrolling of Benefits in Kind: What UK Employers Need to Know
From the 2027-28 tax year, most employers will be required to payroll Benefits in Kind (BiKs), a shift that demands early action—this article outlines key steps, examples, and compliance tips.
By NomadicTax Research Team • 5-8 min read • February 18, 2026
## What’s Changing?
Starting in the **2027-2028 tax year**, the UK government will make **payrolling of most Benefits in Kind (BiKs)** mandatory for employers. Previously, many employers registered voluntarily to payroll BiKs; from this point, registration will no longer be optional for most types of BiKs. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
Some benefits such as **employment-related beneficial loans** and **living accommodations** will remain outside this mandatory requirement, but from that period employers can opt into voluntary payrolling for these specific benefits. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
## Why Employers Should Start Preparing Now
- **Systems & payroll software** need to be updated to handle BiKs payrolling. Many current payroll processes assume BiKs are handled separately post-tax via P11D forms.
- **Interim guidance and technical specifications have already been published**, giving dozens of months before mandatory enforcement. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
- Employers must understand what constitutes a BiK, how valuation works, and how to account for them in PAYE. Misvaluation or failure to payroll correctly can lead to penalties and tax liabilities.
## Practical Steps Employers Should Take
1. **Audit current BiKs usage**: List all benefits currently treated as BiKs (company cars, health insurance, low-interest loans, etc.) and determine whether they will be subject to mandatory payrolling.
2. **Check payroll software readiness**: Ensure software can integrate BiKs into the payroll process, account for employee contributions, and report accurately.
3. **Train payroll & HR teams**: These changes will affect how benefit packages are designed, communicated to staff, and taxed—training is essential.
4. **Policy review**: Reword employee benefit policies, agreements, and offer letters to reflect new reporting obligations and payrolling requirements.
5. **Communicate with employees**: Make sure employees understand what BiKs are, how they will be taxed, and how payrolling affects them (e.g. monthly deductions vs year-end forms).
## Examples
- A **company-provided car**: If previously it was dealt with via year-end P11D, under payrolling the BiK value (after employee contributions) will be taxed monthly through payroll.
- **Private medical insurance**: Similarly, premiums will show up in regular PAYE deductions rather than P11D.
- **Low-interest loans**: If made voluntary for payrolling, employers involved need to calculate the taxable benefit correctly and capture it in payroll.
## Tips for Smooth Transition
- Start using interim guidance now to trial your payroll setup. HMRC’s interim guidance gives construction timelines and technical specs early. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
- If unsure whether a benefit qualifies, consult HMRC’s benefit-in-kind rules or seek professional advice.
- Monitor HMRC for upcoming updates and detailed rules especially regarding voluntary payrolling of loans and accommodation. ([gov.uk](https://www.gov.uk/government/publications/employer-bulletin-february-2026/february-2026-issue-of-the-employer-bulletin?utm_source=openai))
## Bottom Line
Mandatory BiK payrolling represents a major shift in employer tax administration. For many UK employers, this will require system upgrades, policy changes, and new governance around benefits design. But with the transition period ahead, early preparation can help avoid compliance risks, unexpected liabilities, and administrative burden down the road.
**Category**: Compliance | **TaxHome**: UK | **Author**: NomadicTax Research Team | **ReadTime**: 5-8 min | **Published**: true