Mandatory payrolling of benefits: what we know so far

Charges

No penalties for inaccuracies charged where mistakes are made in relation to mandatory payrolling in RTI returns for 2027/28, unless there’s evidence of non-compliance. Late filing and late payment penalties will still apply that year and so will statutory late payment interest.

No change to penalties for P11D and P11D(b) returns that currently apply, where employers are required to complete those returns, e.g., for employment-related loans or accommodation that aren’t payrolled.

Further details on penalties and interest that will apply from 2028/29 onwards to be given when draft guidance is published.

Registration

No need for employers to register to payroll BiKs from April 2027 unless they’re payrolling loans and accommodation benefits.

HMRC will automatically remove benefits from employees’ tax codes ahead of mandatory payrolling in April 2027.

There’s the option to voluntarily payroll most BiKs before it becomes mandatory, but registration is still required to do so before that point.

Registration service to register for voluntarily payrolling loans and accommodation expected to open from November 2026. This will need to be used where there’s the intention to payroll loans and accommodation.

Specific scenarios

We’ve selected a few specific scenarios of note outlined by HMRC in the technical paper but to read them all in full please head over to the document.

First year cash flow impacts for employees

Concerns have been raised around employees having tax deducted in respect of multiple tax years at the same time when payrolling starts. This would be where the employee’s tax code reflects a previous year’s benefits and they’re also paying tax on current benefits in real time. HMRC has confirmed that where financial difficulty is being experienced due to this, there’s the option to ask HMRC to spread the underpayment over more than one tax year. HMRC has committed to improving guidance and will provide communications to employers to help employees understand this issue and to alert them to the support available in these scenarios.

50% overriding regulatory limit

Where deducting the tax on BiKs and expenses means that the tax due is over 50% of an employee’s pay there’s the option to either remove the employee from voluntarily payrolling and report their BiKs and expenses using the P11D and P11D(b) process, or to keep the employee in payrolling and carry forward taxable amounts to future pay periods in that tax year.

Any uncollected amounts above the limit will be collected by HMRC following the end of the tax year using the current end-of-year reconciliation process or simple assessment. Where self-assessment applies, the uncollected tax amounts will be collected via that route.                                                      

Employees / directors who receive no income

Where this applies, the employer will need to send details of the BiKs and expenses provided using an FPS and pay the Class 1A NICs due in the same way employers do when they pay employees in receipt of income. The FPS will need to report no payments of earnings and tax. Any uncollected amounts will be collected by HMRC following the end of the tax year using the current end-of-year reconciliation process or simple assessment. Where self-assessment applies, the uncollected tax amounts will be collected via that route.      

Differing pay cycles

The cash equivalent of the BiKs and expenses should be divided across the number of relevant pay periods for each employee. Where payment isn’t made monthly but instead is made quarterly, weekly, fortnightly or four-weekly, the number of pay periods needs to be calculated and then the cash equivalent divided accordingly. For some tax years, there may be 53 pay periods and this needs to be taken into consideration.

Communication

The Department for Business and Trade confirms certain information must be included on payslips. This doesn’t include any specific BiK information and there aren’t currently any plans for that to be added. This is partly because there may be a limit to what can be included on payslips.

Employees will be able to access their BiKs information through their personal tax account and should be encouraged to download the HMRC app to see this themselves.

Employers will be required (as they currently are if they’re voluntarily payrolling) to provide details of BiKs employees have received within the tax year. They need to provide a statement showing which benefits were provided, that they were payrolled and what the value of those benefits were by 1 June following the end of the tax year. There isn’t currently a set format for this and there are no plans to introduce one.