Mandatory payrolling of Benefit-In-Kind delayed until 2027

CREATED BY ROGER EDDOWES Published: 18/12/2025 @ 09:00AM #PayrollingBenefitiIKind #HMRC #Payroll #P11D #UKTax #EmployerCompliance

Mandatory payrolling of Benefit-in-Kind, originally slated to arrive in April 2026, has now been delayed until 2027. Employers will eventually shift tax and Class 1A NICs into payroll. Here's what changes, what's unclear, and how to prepare ...

Payrolling of benefits, In kind, a perk for some, A reward for work

The government had signalled a decisive shift: from April 2026, payrolling of Benefit-In-Kind would becomemandatory, moving tax and Class 1A NICs into payroll software and away from the long‑standing P11D cycle.

However, due to stakeholder feedback, this has
now been delayed until 2027!

Employers reading the original announcement will notice the intent is to reduce administrative friction, particularly the annual scramble of four million P11Ds and forms P11D(b). Today, many businesses already payroll some benefits because they are easy to calculate in real time, while keeping more complex benefits off‑payroll.

The new 2027 regime forces a rethink of those boundaries, and it raises practical questions about data capture, valuation points, and how payroll changes will handle in‑year adjustments.

It is encouraging that Class 1A NIC will be payable via payroll, removing the split process where tax is payrolled, but NIC is reported separately. Yet one crucial uncertainty remains: whether the payment due date for Class 1A will shift and how software will handle the timing. Employers will want clarity early because cashflow, forecasting, and reconciliation hinge on payment cadence as much as on calculation. This is one of the reasons for its delay.

For employers with complex benefits, the hardest
work sits beneath the surface!

Beneficial loans and employer‑provided accommodation are notoriously intricate to compute on a pay‑period basis, and emergency vehicles or employee payments for private use add further variables. Without careful consultation and clear guidance, the mechanics of payrolling of Benefit-In-Kind could become a compliance maze rather than a simplification.

The software angle cannot be ignored either, because a robust specification is the difference between smooth automation and manual workarounds. April 2026 was too close for vendors to design, build, and test across edge cases, especially where benefits adjust mid‑period or employees join and leave rapidly. 2027 gives accountancy and payroll software companies more time to update their products.

Still, I feel that employers may want to keep an eye on what their software providers are doing with roadmaps, testing plans, and how P11D replacement logic will reconcile year‑to‑date figures with closing payroll submissions.

In practice, preparation looks like a series of small, deliberate
steps that de‑risk the process!

Employers can pilot selected benefit types in advance, align policies for recoverable private‑use charges, and agree on a process for corrections when benefit values change. The direction of travel is set, so payrolling of Benefit-In-Kind will become the default.

Those who start preparing for 2027 now will feel the least pain when the switch is thrown.

Until next time ...

ROGER EDDOWES
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About Roger Eddowes ...
Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach. Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

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