If you've been involved in voluntary payrolling of benefits in kind (BIK) over the last 10 years, the natural assumption is that mandatory payrolling BIK from April 2027 will be a fairly straightforward extension of what you're already doing.
It isn't. And the sooner payroll and HR teams understand that, the better placed they'll be when the changes take effect.
Voluntary payrolling, introduced in 2016, was always a relatively light-touch process – limited data fields, annual Class 1A reporting via P11D(b), and a familiar end-of-year rhythm. The 2027 changes are a different proposition: more granular data, real-time reporting, monthly Class 1A payments, and a substantial shift in where responsibility sits across HR, payroll, finance, and benefits teams. For many organisations, that will mean revisiting how their payroll software – or integrated HR and payroll software – is configured to handle new data requirements.
Here's a closer look at what's coming – and where teams need to focus their attention now.
Benefits in kind 2027: the timeline
HMRC's draft legislation is being published in stages between February and July 2026, with all draft legislation targeted for completion by Autumn 2026. Voluntary registration for payrolling employer-provided loans and accommodation will open in November 2026 and run until 5 April 2027. Mandatory payrolling for all other BIKs starts on 6 April 2027.
That gives most teams less than a year of detailed legislation to work with before go-live – and the full end-of-year process hasn't been published yet.
Real Time Information (RTI): a step change in data requirements
This is where the assumption of "more of the same" falls apart most clearly.
Currently, benefits in kind payrolled on a voluntary basis are reported via RTI in minimal detail – essentially, a total value of benefits taxed via payroll, plus some specific car-related fields. HMRC sees the headline number, not the underlying detail.
From April 2027, mandatory payrolling BIK changes this substantially. Additional data groups (referred to as ‘child groups’ by HMRC) are being introduced for RTI submissions, each with multiple required data fields, which essentially reproduce a P11D level of detail. They cover:
- Assets transferred
- Employee payments
- Vouchers and credit cards
- Living accommodation
- Mileage allowances
- Cars and vans
- Loans
- Private medical
- Relocation expenses
- Services supplied
- Assets at employee disposal
- Class 1A NICs
In practice, payroll teams will no longer just receive a value to report. They'll need cost figures, cash equivalents, year-to-date values, descriptions of "other" items and amounts made good.
That raises an immediate question: where will all this data come from? It might sit with HR, in an employee benefits platform, with a fleet provider, with finance, or with the employee themselves. Often it'll be a mix. Working out who owns each data point – and how it gets to payroll cleanly and on time – is one of the most important pieces of preparation organisations can do this year.
Mandatory payrolling BIK: Class 1A NIC from annual to real-time
Class 1A National Insurance contributions are currently an employer-only annual payment, due by 22 July following the end of the tax year, calculated at 15% of the taxable BIK value and reported on the P11D(b).
From April 2027, Class 1A NICs become real-time monthly payments, paid alongside PAYE and other NICs at 15% of the BIK value for each tax month. Three new RTI fields will support this: real-time Class 1A NICs due in period, year-to-date Class 1A NICs on payrolled BIKs, and a Class 1A adjustment field. Employers in 2027 will have a monthly cost of Class 1A, as well as the annual bill in July for 2026/27.
The implications go beyond payroll. Monthly cost of employment becomes harder to predict, and budgeting cycles will need to shift accordingly. Late-reported benefit changes will create catch-up payments that affect both employee tax and employer NIC costs. And any taxable benefits included in settlement or redundancy payments will need 15% employer NIC calculated and paid immediately – not deferred to year-end.
Tax documents: what's changing, what's staying
There are three things to flag here.
1. The P11D is largely disappearing
It'll be retained for a limited set of exceptional cases (more guidance on this is expected in the first half of 2026). From April 2028, penalties and interest may apply where forms are submitted outside their intended use.
2. P45s and P60s are not changing to include BIK information
This decision has practical consequences: an employee leaving, applying for a mortgage, or needing to evidence their full income won't be able to rely on their P60 alone. HR will need to be ready to produce supplementary letters or BIK statements.
3. BIK statements remain mandatory
Employers must provide details of relevant benefits received in a tax year, sent by 1 June following year-end. There's no set format and HMRC currently has no plans to introduce one – which means each employer will need to design their own. Done well, a clear BIK statement can pre-empt many of the supplementary letter requests likely to land in HR's inbox.
Calculations and the 50% cap
Under mandatory payrolling BIK, tax due in any pay period will be capped at 50% of pay (including payrolled benefits in kind). For each benefit, the cash equivalent is divided by the number of pay periods in the year, rounded down to two decimal places, and added to taxable pay so tax can be calculated and deducted in the normal way.
Mid-year changes follow a clear pattern: work out the revised value, deduct what's already been payrolled, and divide the remainder across the remaining pay periods. Where actual values aren't known – fuel cards and certain loan benefits, for instance – reasonable estimates should be used and adjusted when actual figures are confirmed.
Where the full tax due can't be collected within a pay period (an employee on long-term sick, or hitting the 50% cap), uncollected amounts can either be carried forward where possible or collected by HMRC after year-end via P800, simple assessment, or self-assessment.
What payroll and HR teams should be doing now about benefits in kind
There's no need to wait for every piece of legislation to be finalised before starting. The most useful work is structural, and it can begin immediately.
Prepare your data
- Identify every BIK your organisation provides, where the data sits, who owns it, and how it currently flows
- Map out where new data points will come from, and what changes to interfaces, APIs, or manual processes might be needed to capture them
- Think about the cut-off points – if a company car is issued on day one, when does payroll find out?
Prepare your processes
- Review how mid-month benefit changes are communicated to payroll today
- Will this approach hold up under the demands of monthly real-time reporting?
- Decide how you'll handle benefits with unknown values, and how corrections will be tracked
Prepare your finances
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Rework cash flow forecasts to reflect Class 1A NICs becoming a monthly cost rather than an annual one
Prepare your communications
- 2027/28 will be a transition year, so some employees may temporarily see lower take-home pay if they're paying off arrears from 2026 while also paying real-time tax on 2027 benefits. That's worth flagging early
- Employees also need to understand that their tax liability isn't fundamentally changing – just the timing of when it’s collected
The bottom line for mandatory payrolling BIK
Mandatory payrolling BIK is the most significant change to UK benefits reporting in years. The framing of "it's just voluntary payrolling, but mandatory" doesn't hold up to scrutiny – the data requirements, payment timing, and inter-team coordination involved are all materially different.
But don’t worry – there's still time to prepare well. The teams that will find April 2027 easiest are the ones treating it as a cross-functional change programme now, rather than a payroll project to pick up in late 2026. And we’re here to help. Get in touch to see how our payroll experts can support you, or watch our webinar to learn more about getting ready for BIK 2027.
Get the full guide
If you'd like a more detailed walk-through of what's changing and how to prepare, our free BIK 2027 guide covers the legislation, the data requirements, and the practical steps employers should be taking this year.
About the author
Claire Warner FCIPP is Ciphr’s regulatory analyst, and one of our team of payroll experts. She says: “Having ‘fallen’ into payroll like so many others, I’ve worked in the profession for over 40 years in multiple roles. This includes running payrolls in various industry sectors and working with software houses to develop software and implement systems for clients. I’ve also designed and delivered professional training and qualifications, and sessions, conferences and webinars on various payroll-related subjects. I now use this knowledge and love of payroll and the legislation that impacts it to help guide, inform and support others within the profession.”