Mandatory payrolling of Benefits in Kind: Actions to take now

The tax rules on Benefits in Kind (BIKs) are changing. From 6 April 2027, Phase 1 of  HMRC’s ‘Mandatory payrolling of Benefits in Kind and expenses’ comes into force. Phase 1 will apply only to company cars, car fuel, vans, van fuel and medical benefits.

Mandatory payrolling for most other benefits will be introduced from April 2028.

Employers will need to begin preparing for the changes, which will include ensuring that payroll software and processes are correctly set up. However, to avoid employees being surprised, employers should also consider communicating the changes to their staff.

Early communication is key to making sure staff understand how this change may affect their tax code and take-home pay.

What to explain

The main point to clarify with your staff is that if they currently pay tax in arrears on BIKs they will not do so from April 2027 onwards for any BIKs that are included in Phase 1.

Many employees may not realise this is how they are paying tax on BIKs, and that next year they will pay tax on their BIKs for cars, vans, fuel (for both cars and vans) and medical benefits in the year they receive them.

They may currently have a deduction in their tax code, so they pay tax on an estimated benefit. This will no longer be the case from April 2027.

Tax on Phase 1 BIKs must be paid in real time in the year they are received.

What this means in practice

This means that some employees could end up paying tax in real time on some benefits they are receiving in 2027-28, while at the same time also be catching up with payments for any BIKs from the previous tax year. It might seem to them that they are paying tax twice. This is not the case but could be confusing if it is not explained.

Employees can be advised to contact HMRC to discuss options based on their circumstances if this overlapping taxation causes them hardship.

Should you have queries or need advice on payroll or BIKs, please get in touch. We’d be glad to help.