Payrolling benefits in kind from April 2027: What you need to know

Carly Woodland, Manager

The current system

Benefits in kind are employee expenses or perks paid for by employers on behalf of their
staff, that aren’t part of their salary but still have a monetary value. Common examples
include medical insurance and company cars. Traditionally, the benefits for each tax year
have been reported to HMRC via forms P11D for each employee and the employer submits
the total benefits and Class 1A NIC due via a P11D(b). The payment of this is then due for
payment by 6 th July following the end of the tax year.

Once submitted HMRC will then reissue tax codes for employees in the current tax year to
update the benefit amount for the previous tax year so employes are always effectively
playing catch-up with their tax due.

What’s changing?

From 6 th April 2027, it will be mandatory for all employers to payroll benefits in kind. This
means that the cash equivalent of the benefit (including VAT) for the year will need to be
divided by the number of pay periods in the year to calculate a monthly amount and
processed with the payroll as ‘non monetary gross pay’. The amounts will be subject to
income tax only – not NICs, student loan or pension deductions.

This is beneficial for both the employer and the employee – it is more efficient for the
employer to manage the employee benefits monthly, and they will pay the Class 1A monthly
instead of annually, and it ensures employees are paying the tax due on the benefits monthly
instead of having a delay between the tax on the benefit being incurred and paid. This new
process will need to be communicated to employees in writing, so they understand why/how
their pay is changing.

This new requirement will remove the need for employees to have a P11D, but employers
will still need to collate the information on a P11D(b) and submit this to HMRC as usual.

To start payrolling benefits the employer will need to register with HMRC before the tax year
begins. At Pinkham Blair we have started payrolling a few of the client’s employees benefits
from April 2025 so we can get used to this system. The requirement was originally meant to
start from April 2026 but doing this early will help us to streamline the process ahead of
registering all clients before 6th April 2027 – so far so good!

Complications with this new system:

1. Not all benefits can be processed through the payroll currently – employer-provided
   living accommodation and beneficial loans (such as low-interest or interest free
   loans) still need to be reported via a P11D. HMRC are working on a solution to try
   and include these amounts from 6 th April 2027.
2. Communication with your accountant is key to make sure if any benefit amounts
   change – e.g. medical benefit renewal amount or company car lease renewal
   changes the amount of the benefit. If the correct amounts aren’t included in the right
   months there will be a catch up later in the year.
3. Where there is no payroll scheme in place currently where directors/employees
   receive benefits but no salary there is no solution from HMRC as to how this will work
   – it is likely these businesses will need to set up a payroll system which create more
   admin for them

Overall, once this process is implemented it should really streamline the payroll process for
employers and mean employees tax is more accurate so will be a positive change for both
parties. We will provide a further update a little closer to this new requirement starting.