From April 2027, the way businesses report and pay tax on employee benefits is changing.

HMRC is making it mandatory for employers to pay benefits in kind through payroll rather than reporting benefits at the end of the tax year using P11D forms. Instead, employee tax will be collected later via their tax code, a move designed to simplify the system and improve accuracy for both employers and employees.

If you're currently submitting P11D forms each year, or you're unsure what this change means for your business, read on. This blog provides a breakdown of the changes and offers guidance on how to prepare.

What are Benefits in Kind (BiKs)?

Benefits in kind are non-cash perks or benefits that employees receive in addition to their salary. The employer usually provides these and can include:

  • Company cars
  • Private medical insurance
  • Interest-free or low-interest loans
  • Gym memberships
  • Living accommodation

Although these are not paid as part of an employee's salary, they are still taxable and must be reported to HMRC.

Who is affected by the new rules?

All UK employers who provide taxable benefits in kind to employees will be affected.

From 6 April 2027, it will become mandatory to payroll most BiKs, meaning you'll need to report and tax benefits through the real-time PAYE system instead of the annual P11D route.

The current process: P11Ds and tax on benefits

At present, if you provide taxable BiKs to employees, you need to:

  • Submit P11D forms for each employee who received a benefit by 6 July following the end of the tax year.
  • Submit a P11D(b) form to calculate and pay Class 1A National Insurance Contributions (NICs).
  • Employees then pay the tax due on their BiKs through their tax code in the following tax year.

This system can create delays and confusion, especially if an employee leaves partway through the year or changes tax code.

How will the new payrolling process work?

While HMRC is yet to confirm the exact details, it looks as though under the new system:

  • Employers will need to show the cash equivalent of the BiK and ensure the correct tax is deducted through PAYE.
  • Income tax on the benefit will be deducted in real time through PAYE.
  • You'll still need to submit a P11D(b) annually to report and pay Class 1A NICs.
  • There will be no need to submit individual P11D forms for most benefits (with some exceptions to be confirmed by HMRC closer to the date).

This means tax is paid as the benefit is received, making it fairer and more transparent for employees.

Will class 1A National Insurance Contributions (NICs) still be payable?

Class 1A NICs are still payable on most BiKs—even under the new payrolling regime. Employers will:

  • Calculate Class 1A NICs as usual.
  • Submit a P11D(b) by 6 July following the end of the tax year.
  • Pay Class 1A NICs by 22 July (19 July if paying by post).

How should employers prepare for the change?

Although 2027 might feel a long way off, it's essential to start preparing now. Here's how:

  • Review your current employee benefits and assess which can be payrolled.
  • Register for payrolling benefits via your HMRC online account (optional until April 2027, but a good opportunity to test).
  • Update your payroll software and processes to handle BiKs monthly.
  • Communicate clearly with employees about what the changes mean for them.
  • Speak to your accountant or payroll supplier for tailored advice.

How DWilkinson&Company can help

At DWilkinson&Company, we provide practical, proactive accounting advice to small businesses and start-ups across Yorkshire and Lancashire. We can help you:

  • Understand which BiKs apply to your business.
  • Register and set up payrolling correctly.
  • Update your payroll systems and processes.
  • Stay compliant with HMRC deadlines and NIC payments.
  • Communicate the changes clearly to your team.

We're already helping clients transition to the new rules—so whether you're looking to get ahead early or need help understanding your options, we're here to support you every step of the way. Please contact us at 0113 320 0001 or email office@dwco.co.uk. Find out more about our payroll service here.