Navigating the New HMRC Payrolling Guidelines for Benefits in Kind Phases 2027 and 2028

HM Revenue and Customs (HMRC) has introduced a new phased approach to mandatory payrolling for reportable Benefits in Kind (BiKs) and expenses, starting in April 2027. This change aims to simplify how employers report taxable benefits and improve real-time tax and National Insurance contributions (NICs) processing. Understanding these updates is essential for payroll professionals and employers to prepare effectively and avoid compliance issues.

What the New Phased Approach Means

The updated guidance splits the rollout into two main phases:

• Phase 1 (April 2027): Mandatory payrolling applies only to three specific benefit categories:

- Company cars and fuel

- Vans and van fuel

- Private medical benefits

• Phase 2 (April 2028): Most other reportable BiKs will become mandatory for payrolling, except for loans and accommodation benefits, which will be mandated later.

  
  

Until these later phases, employers can continue reporting other BiKs on P11D forms or through voluntary payrolling.

Benefits of the Phased Rollout

This staged approach addresses concerns raised by external stakeholders, including the Chartered Institute of Payroll Professionals (CIPP). It provides several advantages:

• More time for preparation: Employers and software providers gain extra months to adapt systems and processes.

• Simplified data requirements: Phase 1 requires only 32 data fields in the Full Payment Submission (FPS), down from over 100 fields previously needed for all BiKs.

• Reduced delivery risks: The smaller data set helps payroll teams manage workloads and reduces errors during implementation.

  
  

Employers who have already started payrolling all benefits can continue doing so. However, only company cars, vans, and private medical benefits must be reported using the new FPS data fields. Other benefits processed will still be reported voluntarily, and registration may be necessary.

How Payrolling Benefits in Kind Works

Payrolling BiKs means reporting the taxable value of benefits and expenses through the FPS alongside regular payroll data. This allows tax and Class 1A NICs to be calculated and paid in real time, avoiding the need for end-of-year adjustments.

For example, if an employee receives a company car, the taxable benefit value will be included in their monthly payslip, and the employer will report this via FPS. This real-time reporting helps employees manage their tax liabilities more smoothly and reduces administrative burdens for employers.

Preparing for the Changes

Employers should start planning now to ensure a smooth transition:

• Review current BiK reporting: Identify which benefits fall under Phase 1 and which will follow in later phases.

• Engage with payroll software providers: Confirm that your payroll system will support the new FPS data fields by April 2027.

• Train payroll teams: Ensure staff understand the new reporting requirements and processes.

• Consider voluntary payrolling: If you want to payroll benefits not yet mandatory, register and follow voluntary payrolling procedures.

  
  

For those seeking BIK help, consulting with payroll experts or professional bodies like the CIPP can provide valuable guidance. The CIPP Policy team is available to support payroll professionals navigating these changes.

What to Expect Next

HMRC plans to release updated payrolling guidance with fuller technical details in the coming weeks. Staying informed about these updates will help employers remain compliant and avoid last-minute challenges.

The phased approach reflects a practical response to feedback and aims to make payrolling BiKs more manageable for all parties involved.