Payrolling of Benefits in Kind to be Delayed Until April 2027
Payrolling of benefits in kind and expenses was scheduled to begin in 2026. Today, it was announced by HMRC that this will now be delayed a year, until April 2027.
In a technical note published today, HMRC has explained that the delay will allow businesses additional time to prepare for the introduction of mandatory payrolling for taxable employment income and benefits in kind (BiKs).
What is the Reporting Process for the Payrolling of Benefits in Kind and Expenses?
Now starting April 2027, the process will be via the Full Payment Submission (FPS). This is the same process employers use in reporting salary and other employee details to HMRC .
The FPS system will be used to report the taxable value of Benefits in Kind and expenses. This will mean that both Income Tax and Class 1A NICs are reported in real-time.
Payrolling the Benefit Value
Generally, employers will be required to divide the annual cash equivalent of the BIK by the number of relevant pay periods for employees, where this applies. This figure, for each pay period will be liable for Income Tax. This will be in the same way as it applies to earnings. This will also apply to Class 1A National Insurance Contributions.
Where BIK values are not known at the beginning of tax years, employers are required to estimate taxable values, dividing them by the relevant pay periods.
If the cash equivalent changes during the year, employers are then required to calculate a revised taxable amount for the remaining pay periods, which will then be payrolled in the corresponding tax year.
Penalties and Interest Regarding Payrolling of Benefits in Kind
Customers making errors relating to mandatory payrolling in their RTI returns for the 2027/28 tax year will not receive financial penalties for inaccuracies. One exception to this is where there is evidence of deliberate non-compliance.
Existing late filing and late payment penalties will still apply in the first year of operation. Statutory late payment interest will also still apply. Penalties for P11D and P11D(b) returns, where an employer is still required to complete these returns, will remain.
For later tax years from 2028/29 onwards, penalties and interest apply similarly as they do for voluntarily payrolled Benefits in Kind and expenses. HMRC has stated it will provide details on the new penalty regime and interest charges when draft guidance is published later this year.
Good News for Businesses
It will be a relief for many businesses who are not yet prepared for the payrolling of Benefits in Kind, allowing further time to update their systems.
We recommend that businesses do not delay introducing procedures, allowing adequate time to move to real-time reporting and fully understand the changes. Moving to the new system before it is mandatory could reduce the administrative burden.
Please contact our dedicated payroll team for further information or if you require assistance with your payroll or any other tax or accounting matters.
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