Mandatory payrolling of benefits in kind just got delayed until April 2027

It’s hard to find someone who isn’t pleased with the mandatory payrolling of benefits in kind being pushed back from April 2026 to April 2027.

The government announced the 12-month delay last week, but you actually need to go back to 2024 to appreciate all the facts, writes Dan Mepham, boss of SG Accounting.

P11D? It’s still on the way out

Back in January last year, the government announced that from April 2026, it would become mandatory for benefits in kind (BIKs) to be reported via payroll and PAYE.

The ‘mandatory’ bit means this payrolling will entirely replace the current P11D process.

Given that this move waves goodbye to some four million forms, payrolling BIKs is largely about simplification, as HMRC said in a document in January 2024.

How will payrolling benefits differ from P11D?

By payrolling BIKs, employees will pay any tax or National Insurance due on their benefits provided by their employer on a more regular, even basis.

This new regularity, which will be paid over to HMRC in real-time, will be in place of employees receiving a mid-year tax code change, or a payment request letter from HMRC, once their P11D form has been submitted.

Example for contractors of payrolling benefits: a company car

Let’s take the example of a limited company contractor with a company car.

Under the existing system, the car would be reported on a P11D after the close of the tax year, and the contractor would then pay any liabilities on it once submitted to HMRC.

Well, under the new system of payrolling benefits, this would change to the contractor paying liabilities on a more regular basis, with the liabilities instead being calculated and paid per pay period, throughout the tax year.

What our contractor accountancy firm makes of payrolling BIKs

Our take on mandatory payrolling of employment-related benefits in kind, as a contractor accountant?

We believe payrolling benefits provides employees (including limited company directors) a better insight into their cash flows, as the liabilities will be dealt with regularly via their salaries, rather than in a lump sum.

Clarity from HMRC on payrolling benefits? It’s hardly been in real-time

However, even though the originally intended commencement date of April 2026 (to implement the payrolling of BIKs) has been fast-approaching, there’s been little clarity from the government as to exactly how the new system would work.

Ominously, there’s been even less clarity for those individuals in the UK workforce who aren’t standard employees, but who still take regular salaries.

Salary-less limited company directors: the payroll benefits fog

Specifically, there are lots of limited company directors who have benefits through their company, and they therefore report on a P11D, but don’t draw a salary.

So, for a while, the government has needed to specify how those benefits would be reported, once payrolling becomes mandatory.

The government decision to delay mandatory payrolling of benefits…

Well, after feedback from external stakeholders, payroll and tax professionals, and software providers, HMRC announced on April 28th 2025 that the mandatory payrolling of benefits is to be delayed -- until April 2027.

You can read the relevant notice on .gov here.

In short though, the mandatory payrolling of BIKs will be introduced a year later than initially planned.

HMRC penalty waiver is a plus

HMRC has also confirmed in a policy paper that during the initial implementation period of the mandatory payrolling of employment-related benefits in kind, penalties for customers in 2027/28 will be alleviated.

It’s a welcome recognition from the Revenue that processors, software providers and taxpayers alike will be getting to grips with the new requirements of the tax on taxable benefits altering, by being collected in real-time.

What are the benefits of HMRC’s decisions on BIKs?

This HMRC penalty waiver for the first tax year (which doesn’t apply to “deliberate non-compliance”) will give stakeholders a fair shot at planning, preparing and adjusting to the changes, without the threat of fines for trying to comply.

And the 12-month delay will also give the government a chance to clarify some key questions and concerns, including those still unanswered queries from companies and providers on the processing side.

Taken as a package, it’s easy to see why the delay to mandatory payrolling of BIKs has gone down well -- even if it is a case of slightly mixed emotions for very prepared accountants who were already semi-ready to go!

Key BIK payrolling dates

Some key dates to note concerning the introduction of mandatory payrolling of benefits in kind are:

• Autumn 2025: Draft legislation and guidance to be published.

(At this stage, we should get a good idea of what the system may mean for those who receive benefits, including, we hope, for those limited company directors deserving clarity).

• July 2026: Updated legislation and guidance to be published.

(At this stage, we should receive firm confirmation of what the processes for mandatory payrolling of BIKs will be, including for limited directors who have benefits but don’t draw a salary)

• April 2027: Payrolling of BIKs (‘PBIK’) goes live.

And finally, fancy being proactive on the payrolling of benefits in kind?

For any limited company contractors who want to get ahead of the game, you are able to begin payrolling benefits before the new mandatory implementation date. But you’ll need to register for HMRC's payrolling benefits and expenses online service by April 5th 2026 -- so before the new tax year begins.

HMRC says guidance will be updated in due course to give the proactive more details.