The UK government has long sought to streamline the taxation and reporting of benefits in kind (BIKs). As part of these efforts, from 6 April 2026, all employers will be required to payroll BIKs rather than reporting them via the traditional P11D process. While this change aims to bring real-time taxation to benefits, many employers may find that it introduces additional administrative burdens rather than simplifying the process.
The Current Position on Benefits in Kind
Currently, most employers report benefits in kind using forms P11D and P11D(b). The P11D form details the taxable benefits provided to each employee, while the P11D(b) summarises the total benefits and calculates the Class 1A National Insurance Contributions (NICs) due from the employer. Since this process is retrospective, there is often a significant delay between when the benefit is provided and when the tax is paid.
What’s Changing from April 2026?
From 6 April 2026, all employers will be required to payroll BIKs, meaning the tax on benefits will be deducted monthly through payroll, rather than being reported via annual P11D submissions. The government’s intention is to improve tax transparency and accuracy by ensuring employees are taxed on benefits as they receive them, rather than waiting until the end of the tax year. Employers will need to integrate benefit values into payroll calculations and submit real-time information to HMRC.
Increased Administrative Workload
A common misconception is that payrolling BIKs will reduce the administrative burden on employers. While it eliminates the need for annual P11D forms, it replaces this with 12 monthly reporting requirements. Instead of a once-yearly reconciliation, payroll teams must ensure that benefit values are correctly calculated and applied every pay period. This may result in:
- Increased time spent on payroll administration.
- The need for more robust payroll software.
- Additional training for payroll and HR teams.
- More frequent adjustments for changes in employee benefits.
Due to the ongoing nature of BIK reporting, many payroll bureaus and service providers are revising their fee structures to account for the additional workload.
Which Benefits Are Affected?
The new requirement applies to almost all benefits in kind, except for employer-provided accommodation and beneficial loans, which currently remain optional for payrolling.
How Can Employers Prepare?
To ensure a smooth transition to mandatory payrolling of BIKs, employers should take proactive steps:
- Maximise Use of P11Ds where efficient – Employers should consider whether early adoption is truly beneficial or whether continuing with P11Ds until April 2026 is the most practical and cost-effective option. The existing process, while annual, avoids the ongoing complexity of monthly BIK reporting.
- Review Payroll Software – If delaying payrolling BIKs, ensure payroll systems are ready for the transition by 2026 without making unnecessary changes a year early. Employers will need software capable of real-time BIK reporting.
- Communicate with Employees – Employees must understand how payrolling BIKs affects their pay. Clear communication will help prevent confusion and potential payroll disputes.
- Refine Data Management – Accurate record-keeping is essential for ensuring benefit values are correctly processed each month once payrolling is mandatory. Employers should ensure they have a system in place for tracking benefits without creating additional work before necessary.
- Provide Training – Prepare payroll and HR teams for 2026 but avoid premature training that may need revisiting when HMRC updates guidance.
- Consider Early Adoption (Only If Necessary) – While employers may voluntarily payroll BIKs from April 2025, this simply means taking on an additional administrative headache a full year earlier than required and duplicating administration such as P11D(b). For many, delaying until April 2026 and sticking with the P11D process for as long as possible may be the most sensible approach.
Registering for Payrolling Benefits in Kind
Employers who wish to start payrolling BIKs for the 2025/26 tax year must register with HMRC before 6 April 2025. This can be done through their online PAYE account, where they must specify which benefits they intend to payroll.
HMRC – Penalty Approach
Employers should be aware that HMRC has not yet confirmed whether there will be a ‘soft landing’ period regarding penalties for errors in the initial phase of mandatory payrolling of benefits in kind. While some sources suggest that HMRC may adopt a “soft touch” penalty regime for the 2025–26 tax year, official guidance on this matter is still pending. Therefore, it is prudent for employers to aim for accuracy from the outset to mitigate potential risks.
Final Thoughts
While payrolling BIKs offers real-time taxation and removes the need for annual P11Ds, it does not necessarily simplify employer obligations. The shift from an annual reporting requirement to continuous monthly submissions means payroll teams must be well-prepared for the additional workload. Employers should take action now to assess their readiness and consider transitioning early to ensure a smooth implementation before the mandatory deadline in April 2026.
