HMRC has released further guidance on the mandatory payrolling of benefits in kind (BIKs), providing employers with additional clarity ahead of the new regime coming into effect from April 2027.
The latest update focuses on three key areas:
- practical payroll operation;
- reporting requirements and data fields; and
- year-end corrections and adjustments.
The revised guidance will be welcomed by employers and payroll teams as it provides greater insight into how HMRC expects the new real-time reporting to operate in practice.
Practical Payrolling Guidance and Worked Examples
HMRC has expanded its guidance with a range of examples covering different payrolling scenarios. In particular, it has sought to distinguish more clearly between mandatory and voluntary payrolling arrangements, using medical benefits to demonstrate how each approach operates.
Further detail has also been provided on calculating taxable benefits across monthly, weekly and irregular payroll cycles. This should help employers design processes capable of spreading benefit values accurately throughout the tax year.
HMRC has additionally clarified the treatment of Class 1A National Insurance contributions (NICs) on mandatorily payrolled benefits. Where multiple benefits attract Class 1A NIC liabilities, employers will be able to aggregate taxable values and report them through RTI using the relevant data fields.
Accommodation and Beneficial Loans
The updated guidance contains helpful clarification for employers already voluntarily payrolling accommodation benefits and beneficial loans.
Recognising that the final taxable value of these benefits may not be known at the start of the tax year, HMRC has confirmed that employers may use reasonable estimates when calculating taxable values through payroll. Where actual values differ from estimates, adjustments can be made either during the year or through the year-end benefits update process.
This is a particularly welcome development, acknowledging that some benefits cannot be valued precisely in real time. HMRC accepts that reasonable estimates may be used where employers apply a robust methodology and subsequently correct any differences once final values are known.
Reporting Requirements
From April 2027, the Full Payment Submission (FPS) will become the primary vehicle for reporting most taxable benefits and expenses, significantly reducing reliance on annual Forms P11D.
Employers will report benefit values through payroll each pay period, enabling Income Tax and Class 1A NIC liabilities to be calculated and collected throughout the tax year.
This represents a fundamental shift in employment tax reporting and places greater emphasis on payroll accuracy, data quality and effective coordination between payroll, HR and finance functions.
End-of-Year Corrections
HMRC has also enhanced its guidance on correcting benefit information and making year-end adjustments.
Importantly, HMRC has confirmed that there is currently no requirement to provide a specific reason for late reporting when using the year-end benefits update process.
The additional examples should help employers navigate corrections more confidently and reduce uncertainty where benefit values require amendment after the tax year has ended.
What Should Employers Be Doing Now?
Although the latest guidance addresses several practical concerns raised by employers, organisations should not underestimate the level of preparation required before April 2027.
Employers should now be reviewing:
- existing benefit arrangements;
- payroll and HR processes;
- payroll software capabilities;
- ownership and collection of benefit data;
- approaches to estimating benefit values; and
- procedures for making corrections and adjustments.
The move to mandatory payrolling represents one of the most significant employment tax changes in recent years. Early preparation will help minimise compliance risk and ensure organisations are ready for the transition to real-time benefit reporting.
For further information on the impact of mandatory payrolling of benefits in kind, please contact a member of the HaysMac Employment Taxes team.
