From 6 April 2027, the way many employers report and tax Benefits in Kind (BIKs) will change. HMRC is introducing mandatory payrolling in stages, and the first stage is now close enough that preparation should start.
What is changing?
Phase 1 begins on 6 April 2027 and covers a limited set of benefits:
- Company cars
- Car fuel
- Vans
- Van fuel
- Medical benefits
Most other benefits will follow in Phase 2, from April 2028.
Why employers should prepare now
Employers will need to check that payroll software and processes can handle the new requirements. Preparation also means thinking about your people. Staff who aren’t told what is coming may be surprised when their tax code and take-home pay change, so early communication is important.
What your employees need to understand
Tax will be paid in real time. Many employees don’t realise they currently pay tax on these benefits in arrears, often through an adjustment to their tax code based on an estimated value. From April 2027, tax on Phase 1 benefits must be collected through payroll in the same tax year in which the benefit is received.
There may be a temporary overlap. In 2027-28, some employees could be paying tax in real time on benefits received that year while also settling tax owed on benefits from the previous year. It can feel like being taxed twice, but they are not. They are simply catching up on earlier liabilities while moving to the new system. If this isn’t explained, it is likely to cause confusion and queries.
Support is available if needed. Employees who find the overlap causes financial hardship can be advised to contact HMRC to discuss options suited to their circumstances.
Practical next steps for employers
- Identify which employees receive Phase 1 benefits.
- Confirm your payroll software and processes are ready for payrolling.
- Plan how and when you will tell affected staff about the change.
- Prepare a short, plain-English explanation of the tax code and take-home pay impact, including the overlap year.
How we can help
If you have questions about payrolling Benefits in Kind or need advice on getting your payroll ready, please get in touch. We’d be glad to help.
