Money Matters

Payrolling benefits in kind: What you need to know

Get ready for 2027. Learn what payrolling benefits in kind means, how it works, and how to stay compliant with simple, actionable steps for your HR team.

From company cars to gym memberships, offering employee perks is a proven way to boost retention and engagement.

But if you’ve ever struggled to understand how these benefits should be taxed or what needs to be reported to HMRC, you’re not alone.

Payrolling benefits in kind becoming mandatory from April 2027. Now’s the time to get ahead of the curve.

In this article, you’ll learn what payrolling benefits in kind means, how it differs from traditional P11D reporting, and what steps you need to take to stay compliant.

Let’s make sense of it all so you’re ready before the rules change.

Here’s what we cover:

What does payrolling benefits in kind mean?

Payrolling benefits in kind, often referred to as BIKs, means processing the tax on employee benefits through your payroll instead of reporting them separately at year-end on a P11D form.

Rather than waiting until the end of the tax year to settle up, the tax is deducted from your employee’s pay each month.

This gives employees more visibility into what’s being taxed and when, and it saves you time and admin effort throughout the year.

Common types of benefits in kind

Some of the most commonly payrolled BIKs include:

• Company cars and fuel
• Private medical insurance
• Interest-free or low-interest loans
• Mobile phones and broadband
• Gym memberships or wellness subscriptions.

Not all benefits are eligible, but many are. It’s worth reviewing what you currently offer and checking against HMRC’s guidance to see what applies.

Why businesses offer benefits in kind

BIKs are more than just perks. They’re a strategic way to attract and retain top talent in today’s competitive job market.

Perks such as flexible working tools, wellness allowances, and electric vehicle schemes show that your business cares about more than just productivity.

Today’s employees expect more than just a payslip. Flexible perks and personalised benefits often tip the scales in attracting top talent.

For growing businesses, offering thoughtful benefits can make your organisation stand out without requiring large salary increases.

When structured well, they show that your business values wellbeing, convenience, and long-term growth—making benefits a powerful part of your employer brand.

If you’re thinking about your broader people strategy, it’s worth considering how benefits fit into the overall employee experience you want to create.

Why is payrolling benefits in kind becoming mandatory?

This move is all about making things simpler and more transparent.

Employees can see the impact of their benefits on their pay in real time, and employers can reduce the year-end reporting burden.

How to register for payrolling benefits in kind

To start payrolling benefits, you need to register with HMRC before the beginning of the tax year in which you want to start.

Here’s what to do:

1. Sign into your HMRC online account.
2. Select “payrolling employees’ benefits and expenses”.
3. Specify which benefits you’ll be including.
4. Complete your registration before 5 April.

If you miss the deadline, you’ll need to report those benefits the traditional way for that year.

How to payroll benefits in kind

Once registered, the next step is integrating payrolling into your regular payroll cycle.

Here’s what’s involved:

• Add the taxable value of each benefit to your payroll software
• Make sure employees understand what will be deducted and why
• Maintain detailed records of all benefits provided
• Don’t include payrolled benefits on the P11D form.

Even if you payroll all benefits, you still need to submit the P11D(b) to cover employer NICs.

Tips for setup and employee communication

A smooth rollout depends on good internal communication and clear systems.

Here are a few helpful steps:

• Host a brief team session or record a short explainer video
• Follow up with an email that includes key dates, links, and FAQs
• Update payslip formats to make BIK deductions easy to understand
• Appoint someone in HR or payroll as the go-to for questions
• Test your payroll setup well ahead of time to avoid any surprises.

Employees will appreciate the clarity. It’s a chance to build trust while handling an important change well.

How payroll software can help

Good payroll software can make the entire process far easier. It can:

• Calculate tax due on each benefit
• Submit data directly to HMRC
• Maintain records for audits or employee questions
• Automate P11D(b) reporting
• Ensure Class 1A NICs are calculated correctly.

For more practical tips, check out our guide on how payroll automation works.

You can also explore how Sage’s HR solutions support compliance and simplify tax reporting.

Common mistakes to avoid when payrolling benefits

Getting started with payrolling benefits is relatively simple, but there are a few easy missteps that can cause issues if you’re not prepared:

• Missing the registration deadline: you must register with HMRC before 5 April to begin payrolling benefits in the following tax year. If you miss this cut-off date, you’ll need to report benefits via P11Ds for another year.
• Not communicating clearly with employees: if your team sees new deductions on their payslip without any warning, it can cause confusion or frustration. A clear explanation ahead of time helps everyone feel informed and reassured.
• Forgetting the P11D(b): even if all benefits are payrolled, you still need to submit a P11D(b) to cover your Class 1A National Insurance responsibilities. This step is easily overlooked in early setups.
• Assuming your software handles it all automatically: not all payroll systems are fully configured to manage BIKs accurately. Check with your provider to confirm your setup is correct, especially for benefit values and tax codes.

Avoiding these issues will help ensure compliance, reduce employee questions, and set the stage for a smooth transition as payrolling becomes mandatory.

Planning ahead: What to do now

With the 2027 deadline on the horizon, now is the perfect time to review your existing benefits strategy.

Start by listing every benefit your employees currently receive, then identify which ones qualify for payrolling.

Speak to your payroll provider to understand what setup or training might be needed, and build an internal timeline that includes testing before the 2026/27 tax year begins.

It’s also worth involving your finance and HR teams early. Payrolling benefits affects both tax reporting and employee engagement, so cross-functional planning can help catch issues early and ensure nothing slips through the cracks.

Final thoughts

Payrolling benefits in kind will be a legal requirement from April 2027. But the sooner you prepare, the easier the transition will be.

By getting familiar with the rules, registering early, and making sure your employees know what to expect, you’ll reduce stress for everyone. And with the right software and systems in place, payrolling can become one of the simplest parts of your year-end process.

Start now by reviewing your benefits, aligning with your payroll provider, and keeping your team in the loop.

Take it one step at a time, test your systems early, and you’ll be in a strong position well before the 2027 deadline.

The earlier you act, the easier it will be to build payrolling in kind into your everyday payroll process—and reduce stress at year-end for good.