Earlier this year, the British Government announced a significant change to the way benefits in kind (BIK) will be reported.
Starting from April 2026, the payrolling of BIKs will become mandatory—meaning you will no longer have to file annual P11D forms. And while 2026 might not seem like today’s problem, your best bet is to starting preparing now and making the switch over to payrolling benefits.
So let’s look at how how payrolling benefits will change, and the key considerations for you to take on board in light of the updates.
Payrolling benefits in kind: As it stands
As of right now, you have two options when payrolling benefits.
You can either:
- Opt for the traditional method of submitting P11D forms to report employee benefits for tax purposes.
- Alternatively, you can register to payroll benefits, enabling the taxation of benefits in real time through PAYE.
For more information on registering payroll benefits with HMRC via the online service, read: How to Register for Payrolling Benefits
What’s going to change in April 2026?
All benefits in kind (except loans and living accommodation, that you provide) will have to be reported and taxed through payroll. You must ensure that your current payroll process will be able to handle this new development and take actions to either upgrade or replace your software if necessary.
We know change can be scary, especially when it will redefine the way you payroll benefits for the foreseeable future, but in the long run it will save you time and reduce on admin.
You can access additional information on mandatory payrolling via Employer Bulletins.
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5 key considerations for employers
If you are not already payrolling benefits, you should consider how mandatory payrolling will impact your systems and processes.
Here are 5 initial steps you can take:
Step 1. Keep a close eye on HMRC updates
Keep yourself updated with the latest developments and guidance from HMRC regarding the mandatory payrolling of benefits in kind.
Step 2. Review your current systems
Assess your current payroll systems and processes to see if you’re ready for the upcoming changes. Try to find any areas that need improvement and work with your payroll team to address them in a timely manner.
Step 3. Communicate with your employees
It’s crucial to explain the upcoming changes to your employees. Ensure you take the time to clearly outline how these changes will affect their pay and tax.
Step 4. Train your payroll team on the new requirements
Provide training and education to your payroll team to ensure they understand the changes and can effectively manage the reporting process. This will help reduce errors and ensure compliance with the new regulations.
Step 5. Don’t leave it until the last minute
Give yourself enough time to assess your readiness and get your systems in place for payrolling benefits in kind in 2026. You might want to consider payrolling some, or even all of your BIKs from April 2025 on a voluntary basis to give yourself time to test the new system—while still having P11Ds as a fallback option.
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Payroll Legislation Guide
The facts, figures, thresholds and allowances for 2024/25 spanning tax, National Insurance, pensions, statutory payments and more.
