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Oct 8, 2026|10:50 am BST
HMRC originally planned to make payrolling Benefits in Kind (BIK) mandatory from April 2026, then moved the date to April 2027 to give employers more time to prepare. At that time, the plan was still for almost every benefit to move into payroll at once.
In June, HMRC issued new guidance stating that mandatory reporting will now come in two phases. From 6 April 2027, it applies only to company cars and fuel, vans and van fuel, and medical benefits, which make up the most common UK benefits. Most other benefits will follow in April 2028, with a couple of exceptions.
A Benefit in Kind is a non-cash benefit provided by an employer, such as accommodation, a company car or healthcare. Taxable benefits generally attract income tax and employer National Insurance, depending on what they are. Traditionally, employers reported these perks annually using a P11D form, with tax collected through adjustments to employees’ tax codes and Class 1A National Insurance paid annually by employers.
Under the new regime, payrolling benefits means that both tax and Class 1A are calculated in real time. The employee pays tax on the benefit each pay period, and the employer reports Class 1A National Insurance on the Full Payment Submission (FPS)*.
For employers, the main advantage of payrolling benefits is streamlining the admin involved and reducing reliance on retrospective tax code adjustments. For employees, paying tax on benefits as they are received reduces the likelihood of an unexpected tax bill later in the year.
HMRC’s phased implementation will see Phase 1, covering company cars, vans, fuel, and employer-provided medical benefits, take effect from 6 April 2027.
Phase 2 introduces mandatory payrolling for almost all other benefits from April 2028. Beneficial loans and accommodation will stay outside the mandatory regime for now, with no mandatory start date confirmed.
Employers that want to payroll non-mandatory benefits, including loans and accommodation, can, but must register their intent by 5 April 2027. The registration service goes live in November 2026 and allows HMRC to remove those benefits from employees’ tax codes before payrolling starts. Anyone only payrolling mandatory benefits doesn’t need to register.
Some operators will prefer to bring every benefit into payroll at once rather than run both payroll and P11D for a year. However, voluntarily payrolled benefits will still have Class 1A reported through the FPS.
Any non-mandatory benefits operators don’t payroll will continue to need P11D reporting, with a P11D(b) required for any associated Class 1A liability.
Since payroll is aligned to the tax year, adjustments are needed for any policies that renew after the tax year starts. Operators will need to update the benefit value in the month it changes, and recalculate the amount to be payrolled for the rest of the year.
Similarly, mid-year changes like an employee joining a private medical scheme, changing their level of cover, or leaving the business need to be updated before the next payment run.
The transition onto the new system will create an overlap, with operators still paying their Class 1A liability for the current tax year (2026/27) while paying real-time contributions on payrolled benefits from April 2027. A helpful tip is to budget for the one-off Class 1A cash-flow overlap.
After April 2027, employees will see their payrolled benefits reflected in their payroll information, with the tax due collected through PAYE. MAke sure employees understand the changes before April 227 so they know what to expect from their payslip and take-home pay.
“Fourth’s payrolling benefits service has made the process straightforward
for us. We simply communicate any changes to the Fourth team, and
they’re reflected promptly, giving us confidence that everything is being
managed correctly and compliantly.”
Head of HR, Big Table Group
With mandatory payrolling coming in two phases, operators have time to prepare at a manageable pace. Practical steps to consider include:
*at the point of writing this article this is at 15% of the benefit’s value
Q: If our benefits are only private medical insurance, do we still need to register with HMRC?
A: No. Since private medical will be mandatory from 2027, there’s no need to register separately.
Q: Do we need to register if we’re just waiting until April 2027?
A: If it’s Car, Van, or Medical, no action with HMRC is needed — just start payrolling the benefits when the time comes. For any other benefit type, registration is required when the window opens in November 2026.
Q: Can a Personal Accident Insurance payment be processed under “Expenses Payments Made on Behalf of the Employee” from April 2027, or does that follow in a later Phase 2 enhancement?
A: You can voluntarily payroll this now; it becomes mandatory from April 2028. Voluntary registration with HMRC is required, and that window opens in November 2026. If the payment relates more to private medical, process it under Private Medical instead. Otherwise, use “Payments Made on Behalf of Employee” rather than Expense Payments, since expenses of this kind relate more to entertainment, travel, and non-qualifying relocation costs.
Q: What happens with benefits for 2026? Are these completed via P11D, meaning the individual is taxed twice on their tax code?
A: If the company has payrolled the benefits during 2026, those benefits do not require a P11D. Any Class 1A NIC due on them is still reported via the P11D(b) (no P11D is issued to the employee or HMRC in that case). Where benefits were not payrolled in 2026, they follow the standard P11D route, and the tax code uplift point below applies.
Q: What does the employee need to do with HMRC if the benefit is already declared in their tax code?
A: Nothing. HMRC already has these benefits flagged in their systems. Once payrolling becomes mandatory (or a business registers to voluntarily payroll), HMRC will automatically remove the uplift previously applied for that benefit ahead of the change taking effect, to help prevent double taxation.
Q: If a PAYE scheme had a submission this year but won’t next year, do we still need to submit a nil submission next year?
A: In respect of benefits, payrolled or not, no. If you had benefits last year and reported them as expected, but have none in the following year, there’s nothing further to do — nothing needs to be reported.
Q: Will we still need to do P11Ds for the 2026 tax year in July 2027?
A: Yes, if those benefits were not payrolled. The deadline is specifically 6 July 2027. For the same year, where benefits were payrolled, there’s no P11D requirement, but Class 1A NIC must still go via the P11D(b).
Q: If we are payrolling BIK from April 2027 for the 27/28 tax year, do we have to do a P11D(b) submission?
A: No. Any benefits payrolled in the 2027/28 tax year and beyond — whether mandatory (Car, Van, Medical) or voluntarily payrolled — have Class 1A NIC reported via the FPS each pay period, so there’s no requirement for a P11D(b).
Q: Would the PBIK module read the employee’s termination date from the HR module to determine the benefit end date?
A: Yes. When a termination date is added, a benefit end date is automatically applied. This also depends on the company’s benefit retention setting: if a termination date is set but the benefit is configured to continue to the end of the tax year, the benefit is still considered taxable until it truly ends, so the full taxable amount is applied and the tax collected in the employee’s final pay period.
Q: Is the HMRC benefit type already built into the module?
A: Yes, HMRC benefit types are already built into the new BIK module.
Q: Are benefits added automatically once an employee becomes eligible (e.g. PMI), and what about benefits like Critical Illness cover that renew annually?
A: Benefits are never added or renewed automatically, except when rolling into a new tax year (a benefit with no stop date carries over). A user must add a benefit when an employee is ready for it or needs a new one.
Q: When will access to the module be available to begin staff training, and are import templates available to start collating the required info?
A: The module can be made available in the new calendar year to prepare, though nothing will be payrolled until the portal is rolled into the 2027/28 tax year. If an advance look is wanted, this can be set up in a “Yesterday”/UAT portal in the meantime. Templates can be provided now if needed to prepare.
Q: Will this calculate correctly for lunar/4-weekly payroll (13 periods)?
A: Yes — weekly, fortnightly, four-weekly, and monthly are all supported. The annual benefit is divided by 52 (weekly), 26 (fortnightly), 13 (four-weekly), or 12 (monthly). Note that if an employee starts mid-year, or a benefit is added mid-year, the calculation uses the number of pay periods remaining rather than always dividing by the full 52, 26, 13, or 12.
Q: Will you be able to update employee benefit details via CSV upload?
A: Yes, for first loading a benefit. For benefits already in progress, updates are currently employee-by-employee. A “batch update” feature is being actively scoped.
Q: Our private medical renews on 1 December each year, not aligned to the tax year, so increases aren’t known at the start of the tax year. Do benefits have to be recorded as annual totals in line with the tax year?
A: The BIK Module is built in line with the payroll module and adheres to the tax year. Where a benefit changes mid-tax-year, the system accounts for that and adjusts the notional amount applied going forward, whether that means more or less.
Q: What happens when the medical insurance total amount changes during the year, and is it pro-rated automatically if an employee leaves?
A: For mid-year value changes, the system adjusts the notional amount for the remaining periods (see above). For a leaver, the benefit end date is applied automatically based on the termination date, subject to the company’s benefit retention setting.
Q: Will Fourth provide communications for employees explaining the changes, including the “double taxation” perception (acknowledged as not technically double taxation)?
A: An example template can be supplied as part of implementation.
Q: Can the letter template sent to employees be amended by us?
A: Yes, this is done as part of implementation.
Q: We already sent the pre-tax-year notification with our first payroll this year. Should the same letter go out to new starters going forward?
A: There’s no requirement to change the content for pre-tax-year comms. The letter simply needs to inform employees that benefits are now being payrolled and what that means, which the existing notification should already cover. Note this notification isn’t only sent at the start of (or just before) a tax year — it also applies to new starters mid-year. The trigger is the first benefit being added to an employee’s record: the letter is generated, scheduled, and sent from that point.
Q: What are Fourth’s charges for managing this service?
A: Fees are based on the number of eligible employees receiving a benefit.
Disclaimer: This information is accurate at time of publishing, 8 October 2026.
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