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Initially scheduled for April 2026, the compulsory payment of benefits in kind (BiK) is postponed to April 6, 2027.

This change marks a major departure from the traditional P11D/P11D(b) reporting cycle.

Today, even if the change is delayed until 2027, we strongly advise employers to start preparing, as employee benefits will result in significant operational and cash flow changes.

Why is this change happening?

HMRC’s aim is to modernize the reporting system to help simplify tax administration, improve accuracy and collect taxes in real time.

Social benefits in kind constitute a key element of this ambition.

What is a benefit in kind?

Benefits in kind are benefits in kind that employers provide to their staff, which have a monetary value and are therefore taxable.

For example, this includes benefits such as:

• Company cars
• Private medical insurance
• Low Interest Loans

What does mandatory benefit payment mean for your business?

Fringe benefits means ditching P11D annual reports and instead processing the taxable value of each benefit through real-time payroll.

This change will require you to:

• Include the cash equivalent of each benefit on your employees’ pay stubs each month (or pay period)
• Calculate tax and National Insurance Contributions (NIC) on these values
• Report details via Full Payment Submission (FPS)

Class 1A NICs will also move from an annual payment in July to proportional payments each pay cycle, creating cash flow problems for businesses that currently only schedule one annual payment.

Note: P11Ds will not disappear immediately. Employers will still need to submit P11Ds for 2026/27 in the usual way, covering any benefits that were not voluntarily paid in that tax year. The compulsory payment of salaries then comes into force on April 6, 2027, which means that it is from the 2027/28 tax year that the new rules will fully apply. In practical terms, many companies will launch their latest P11D process in 2027 just as they are first learning about employee benefits – a key reason why early preparation is important!

What is the impact of mandatory social benefits in kind on employees?

Under the 2027 change, employees will pay income tax on benefits included in each pay cycle rather than through PAYE coding adjustments or self-assessment.

For many employees, this will result in a significant change to their pay slips.

The taxable value of their benefits will appear next to their salary, so their take-home pay may be different.

Clear communication before the change will be essential to avoid confusion and unnecessary questions with your payroll or human resources team.

What services are excluded from compulsory payment of wages?

Following the 2027 change, only two benefits will not be included in the calculation of the compulsory salary:

• Employment-related loans, such as overdraft administrator loan accounts, below the official interest rate
• The employer provided accommodation

Mandatory pay schedule

HMRC has provided a handy timetable to make preparation easier.

Will there be sanctions for non-compliance with mandatory payment of benefits?

HMRC has said it will not impose penalties for inaccuracies in pay benefits in 2027/28 unless the non-compliance is deliberate.

However, it is important to emphasize that this leniency only applies to inaccuraciesand not a breach; Employers who make no effort to implement timely benefits payments should not assume they are protected.

What should businesses do now to prepare for employee benefits?

The change will need to be managed carefully before April 2027.

Now is the time to review your payroll processes and data to ensure you can report the correct value of benefits each month.

Consider the following areas:

1. Audit your benefits: Identify all benefits currently provided to help you understand what data points should be captured monthly.
2. Review systems and data:Map out where your benefits data resides, whether in your HR system, with a third-party vendor, or in spreadsheets—a single, accurate data flow is required.
3. Engage software or service providers early: Payroll systems will need to evolve to adapt to change, so find a reliable provider who can support you.
4. Plan a testing period: test and refine your processes before officially going live.
5. Communicate with employees: Changes to pay stubs and tax codes can raise concerns, so communicate with employees and explain the upcoming changes.

Preparation is necessary

Employee benefits are a long overdue modernization.

David Kisiaky, Senior Product Manager, told us: “For some time, the Government has aimed to phase out the processing and submission of P11Ds. »

Today, even though the 2027 deadline seems distant, to ensure compliance, early preparation is essential.

If you’re looking for support, we offer a range of payroll solutions, from software to outsourcing, to help you manage change.

What are the advantages of payroll outsourcing?

Payroll outsourcing can ease the transition to mandatory benefit payments.

Suppliers, such as IRIS, are on hand to support you through the changes, ensuring that your payroll is compliant and correct.

Our Benefits Management service manages the end-to-end process on your behalf, from calculating and updating benefit values ​​for each pay period to reporting income tax and Class 1A NICs via RTI – everything is handled as part of your regular payroll processing, with no separate systems or manual workarounds required.