From 6 April 2027, significant changes to P11D benefit rules will take effect, impacting the way the majority of benefits provided to employees are reported and taxed. The aim is to simplify the current reporting process. With mandatory payrolling set to replace most P11Ds from 2027, the question for employers is no longer if they will need to change, but how prepared they are for the change.
But what does payrolling Benefits in Kind really mean, what is changing, and what can businesses do to ensure a smooth transition?
What is a Benefit in Kind?
A Benefit in Kind is a non-cash benefit that an employer can provide to an employee. As the benefit effectively forms part of the employee’s income, Benefits in Kind are subject to taxation. Some common examples of taxable Benefits in Kind are company cars, private medical insurance, gym memberships, and the use of company assets for private purposes.
Who will be affected by the upcoming changes?
All employers who provide Benefits in Kind to their employees or directors and who have not yet moved to payrolling those benefits will be affected by the new requirements.
What is changing?
Employers are currently, and will continue to be, required to report any Benefits in Kind to HMRC. Currently, this is most commonly through the annual P11D form. However, this approach is being phased out from 6 April 2027 and such Benefits in Kind must be reported through the employer’s Full Payment Submission (FPS) through the business’ payroll. This is the same process employers already use to report salary, tax, and other employee details to HMRC.
As such, employers will need to adjust their payroll systems in good time and ensure their systems and processes can calculate and submit accurate taxable benefit values through RTI from 6 April 2027 onwards.
What does this mean in practical terms?
From 6 April 2027, any Benefits in Kind provided to employees will be processed directly through payroll. These benefits will be subject to Income Tax via PAYE in real time, in a similar way to earnings currently.
Employers will need to calculate the taxable value of each employee’s Benefit in Kind and will need to take care to use HMRC’s rules to calculate each benefit’s monetary value. Because these rules can be detailed and, in some cases, complex, many organisations may benefit from seeking professional tax advice to ensure compliance ahead of the implementation date.
What can business do now to prepare?
Accurate, up‑to‑date benefit records will be essential. Taking steps towards ensuring your current data is reliable and accurate will make the transition smoother and minimise year‑end corrections.
Given the scale of change, many employers will benefit from external professional advice and timely communication with their payroll processor. Accounting and payroll specialists can assist with data health checks, software setup, and ongoing compliance.
Conclusion
While the mandatory payrolling of Benefits in Kind aims to streamline the process and ensure timely tax collection, it is also likely to bring new challenges and a period of adjustments for payroll processors.
If you would like personalised advice on the changes outlined in this article, please get in touch. We can also offer comprehensive payroll services to help ensure compliance with the new requirements, the details of which can be found here: Payroll outsourcing | Lovewell Blake