Policy paper

Technical note: Mandating the reporting of benefits in kind and expenses through payroll software – an update

Published 28 April 2025

1. Introduction

The government has announced additional time to prepare for the introduction of mandatory payrolling for benefits in kind (BiKs) and taxable employment expenses. These measures will now be introduced from April 2027, to provide more time for employers, payroll professionals, software providers, tax agents and others to prepare for the change.

This technical note provides an overview of how the new BiKs and expenses reporting system is going to work, in the majority of cases. It also sets out the design decisions that have been made since 2024 to take account of less common taxpayer circumstances which require special consideration.

HMRC will continue to engage closely with stakeholders, using the valuable feedback we receive to inform the outstanding design decisions and deliver this change as smoothly as possible.

2. Who should read this?

This note is aimed at employers, payroll professionals, software providers and tax agents to help these customers and stakeholders prepare for the introduction of this change.

This note provides an overview of how the new BiKs reporting system is set to operate from April 2027 onwards to help businesses prepare for the new system. However, the policy positions will not be finalised until legislation and guidance is published. Draft legislation, draft guidance and technical information will be provided from Autumn 2025 onwards.

3. The default operation of mandatory payrolling

The additional time will mean that for most BiKs and expenses, Income Tax and Class 1A National Insurance contributions (NICs) will need to be reported through Real Time Information (RTI) and paid in real time from April 2027. This date was previously April 2026. The following paragraphs outline how this will work.

Employers will also be able to payroll employment-related loans and accommodation on a voluntary basis from April 2027. There are some less common cases, such as tax award schemes and third-party benefits, which are not covered in this note. We will provide an update on these cases later in the year.

Reporting requirements

From April 2027, the reporting process for BiKs and expenses will be through the Full Payment Submission (FPS). This is the same process employers currently use to report salary and other employee details to HMRC when payments are made to employees.

The FPS will be used to report the taxable value of BiKs and expenses so that both Income Tax and Class 1A NICs can be reported in real-time.

The number of fields for reporting BiKs and taxable employment expenses in RTI (via an FPS) will be increased to align with what is currently reported in the P11D and P11D(b) forms. 

Under the present voluntary payrolling arrangements, limited data is collected on BiKs. To support the introduction of mandatory payrolling, HMRC will need visibility of the BiKs in the FPS to ensure that the correct tax is being reported and paid. Without this information, HMRC would need to conduct more manual compliance interventions to manage non-compliance risks – which would be administratively burdensome for both taxpayers and HMRC.

A list of the information that HMRC is likely to ask employers to collate for their RTI returns has been included in the Annex to this document. We will confirm the data fields we require later in the year when we plan to publish further software technical information.

Benefit value to be payrolled

The taxable value of a BiK will be calculated in the same way as it is now by those using the voluntary payrolling process. 

The general rule will be that employers will need to divide the annual cash equivalent of the BIKs by the number of relevant pay periods for each employee. The resulting figure for each pay period will be liable to Income Tax, in a similar way to earnings. This figure will also be liable to Class 1A NICs each pay period. This must be reported alongside employee earnings in each pay period. If the BiK value is not known at the beginning of the year, then employers must estimate the taxable value, and divide this by the number of relevant pay periods. 

Customers will be expected to use a reasonable estimate. This would preclude, for example, entering a zero value in circumstances where it is known at the time that the benefit will be material.

If the cash equivalent changes during the year, then the employer must work out the revised taxable amount to payroll for the remaining pay periods for that tax year.  

We recognise that there may be situations where it is not known until some time after the tax year has started that an employee has received a BiK. In these cases, the BiK can be reported as soon as possible in the remaining pay periods for that tax year.  Earlier submissions do not need to be amended as long as the BiK is reported across the remainder of the relevant tax year. 

Penalties and interest

To support the smooth introduction of this change, customers who have made an error related to mandatory payrolling in their RTI returns for 2027 to 2028 will not be charged penalties for inaccuracies unless there is evidence of deliberate non-compliance. Existing late filing and late payment penalties for RTI returns will still apply in the first year of mandatory payrolling, as will statutory late payment interest.

There will be no change to the penalties that apply for P11D and P11D(b) returns where an employer is required to complete those returns (for example where employment related loans or accommodation are not payrolled).

For later tax years from 2028 to 2029 onwards, penalties and interest will apply in a similar way as they do now for voluntarily payrolled BiKs and expenses. HMRC will provide further details on the design of this new regime for penalties and interest, later this year when we publish draft guidance.

Updates to Basic PAYE Tools

HMRC’s own payroll software, Basic PAYE Tools, will be updated to deal with the payrolling of benefits in kind from April 2027.

Registration

Employers will not need to register in order to payroll benefits in kind from April 2027, with the exception of loans and accommodation benefits. HMRC will automatically remove benefits out of employees’ tax codes in readiness for payrolling from April 2027.

Employers can continue to voluntarily payroll most BiKs for Income Tax ahead of 6 April 2026 but will have to register to do so prior to this date. The voluntary service will work in the same way as it does now in that not all BiKs can be payrolled. Also, there will be no facility to register for payrolling mid-year prior to April 2027. 

As employers will not be able to register to voluntarily payroll after 5 April 2026, we will be removing the voluntary registration service after this date in readiness for the introduction of mandatory payrolling. The registration service to register for voluntary payrolling of loans and accommodation is expected to open from November 2026. Employers will still have to register to use these voluntary services before the beginning of the tax year.   

Guidance will be updated to reflect this.

BIKs and expenses which could not be accounted for during the year

As confirmed in the Technical Note published following Autumn Budget 2024, there will be an update process for BiKs and expenses where the Income Tax and Class 1A NICs could not be determined during the tax year. 

In line with stakeholder feedback, HMRC recognises that there are situations where the taxable value will not be known during the tax year. For example, this could include fuel cards and employment-related loans and accommodation. In those instances, a reasonable estimate will be required as described under ‘Benefit value to be payrolled’ above.

The BiKs update process can be used to record any under- or over-payments of tax. Where this process is used, all BiKs must be reported by 6 July following the end of the tax year. The additional tax due or repayable will be taken into account in the end-of-year reconciliation process (P800), Simple Assessment and Self Assessment. Any additional Class 1A NICs due will be payable by 22 July following the end of the tax year.

Where employers do not take reasonable care in applying these processes, employers may be liable to a penalty for inaccurate returns and interest on amounts of late paid tax and Class 1A NICs. To support the smooth introduction of this change, no such penalties will apply in relation to returns for 2027 to 2028.

HMRC is continuing to consider some specific scenarios provided by stakeholders and will engage further about under what circumstances the use of the BiKs update process will be appropriate.

4. Updates on policies for specific scenarios

As a result of stakeholders’ valuable feedback, we are able to provide further information below on how mandatory payrolling of BiKs and expenses will work in specific scenarios. HMRC will continue to engage with stakeholders over the coming months to finalise policy decisions and draft guidance and legislation on other aspects not set out here.

First year cashflow impacts for employees 

Stakeholders have raised concerns about employees having tax deducted in respect of multiple tax years simultaneously at the start of payrolling. This is where employees pay tax in real-time on their BiKs and expenses in the current tax year alongside tax owed for BiKs and expenses received in a previous tax year, which is being collected through their tax code.

A similar situation already takes place during an employee’s second year of receiving a BIK, as under the P11D process HMRC collects tax in arrears from the ‘first year’ alongside a forecast BIK value. Underpayments of tax are included in a customer’s tax code subject to some exceptions, for example, if the 50% limit will be exceeded then the underpayment will not be automatically collected through a customer’s tax code.

This scenario currently occurs under voluntary payrolling and HMRC recognises that the underpayment being collected through a customer’s tax code alongside the tax due in real time may cause financial difficulty for some customers. Where this is the case, customers can ask HMRC to spread the underpayment over more than one tax year.

HMRC currently has processes in place to support customers in repaying underpayments of tax from previous years, which includes options to spread underpayments over future tax years. We will improve guidance, including communications to all employers, to help employers explain the issue to their employees and the options available to support payment of tax in these scenarios.

The 50% Overriding Regulatory Limit

Employers must not deduct more than 50% in tax from an employee’s pay. This is called the overriding limit and makes sure that employees are not left with too little pay to cover their living costs. Stakeholders have asked for clarification as to how the 50% limit will work under mandatory payrolling of BiKs and expenses.

Under voluntary payrolling, where deducting the tax for BiKs and expenses means that the tax payable is more than 50% of the employee’s cash pay in that period then employers currently have the option to either:

1. remove the employee from voluntary payrolling, and report their BiKs and expenses using the P11D and P11D(b) process
2. keep the employee in payrolling and carry forward taxable amounts to future pay periods in that tax year

As payrolling will be mandatory from April 2027, employers will be required to carry forward amounts into future pay periods for that tax year. Any uncollected amounts in excess of the 50% limit will be collected by HMRC after the end of the tax year via the existing end-of-year reconciliation (P800) process or Simple Assessment. Where a customer is already registered for Self Assessment, then uncollected amounts of tax will be collected via the Self Assessment process.

These rules will also apply to employees who receive less income, for example if they receive statutory payments in place of their salary.

Employers who have decided to voluntarily payroll loans and accommodation will continue to be able to remove an employee from voluntary payrolling in this case.

Employees and directors who receive no income

Where an employee or director does not receive income from their employment or directorship then their employer will be required to send details of the BIKs and expenses provided using an FPS, and to pay the Class 1A NICs due in the same way that applies for employees who receive income. The FPS will need to show no payments of earnings and tax as none were provided. 

Any uncollected amounts of tax will be collected by HMRC after the end of the tax year via the existing end-of-year reconciliation (P800) process or Simple Assessment. Where a customer is already registered for Self Assessment, then uncollected amounts of tax will be collected via the Self Assessment process.

Guidance will be updated to reflect this.

Employees who receive BiKs and expenses after leaving their employment

Employers are currently required to report details of termination payments and non-cash termination awards (such as assets transferred on termination) via a full payment submission (FPS). This process will be the same when payrolling is mandated for BiKs from April 2027 and guidance is already available on how to report these to HMRC via payroll software. 

BiKs that are provided in the tax year that an employment terminates but not as a termination award (such as continued use of a company car) are currently reported on the P11D and P11D(b). Following the introduction of mandatory payrolling in April 2027 these BiKs should be reported on an FPS. Any uncollected amounts of tax will be collected by HMRC after the end of the tax year via the existing end-of-year reconciliation (P800) process or Simple Assessment. Where a customer is already registered for Self Assessment, then uncollected amounts of tax will be collected via the Self Assessment process. Further guidance on mandatory payrolling will be provided, see section 5 below for timings.

Retaining the P11D and P11D(b)  for some cases

For a temporary period, we will retain the P11D and P11D(b) for employment related loans and accommodation. Voluntary payrolling of these benefits will be available from April 2027. A timeline for mandatory payrolling of these BiKs will be set out in due course.   

We are also considering retaining the P11D and P11D(b) processes for specific scenarios, for example, globally mobile employees that are part of modified PAYE arrangements, commonly referred to as EP Appendix 6 and Appendix 7A. Under these agreements employers have until 31 January to submit a final report of the BiKs they have provided to their employees. We will also be considering the time period which employers should have for doing so following the end of the tax year, depending on the scenario.

We are exploring how best to deal with these limited scenarios and we will share more information when draft guidance is published later this year.

Interaction with student loans

The basis for calculating student loans will not change. Student loan liability will continue to be calculated on earnings subject to Class 1 Secondary NICs.

Annual, quarterly, weekly, fortnightly and four-weekly payrolls

The general rule is that employers will need to divide the cash equivalent of the BIKs and expenses they will be providing across the number of relevant pay periods for each employee. In some tax years, employees may have additional pay periods so the calculation must take into account that this will be the case (for example, where there are 53 pay periods in a tax year divide the cash equivalent by 53). The number of pay periods in a tax year will need to be calculated for quarterly, weekly, fortnightly and four weekly payrolls.

For annual payrolls, the full cash equivalent can be payrolled without dividing it down.

HMRC will provide further guidance about how the general rule applies in specific situations.

Payslip information and end-of-year notification

The Department for Business and Trade specify certain information that must be included on an employees’ payslip. This does not include any specific BiK information and there are no plans to add this to the mandatory information that must be provided on a payslip. 

The amount of information that can be put on a payslip may be limited by individual payroll software products. However, we anticipate that software providers may choose to respond to any customer demand for this functionality. This would enable employers to provide this information on a voluntary basis.

As is already the case under voluntary payrolling, employers will be required to provide their employees details of relevant BiKs they have received in a tax year. Employers will need to send a statement to their employees including which benefits were provided, indicating which were payrolled and the value of those benefits by 1 June following the end of the tax year. There is no set format for these details, and HMRC has no plans to introduce one.

Separately, employees can find out about their BiKs through their personal tax account. Employers can encourage employees to download the HMRC app if they want to see this information directly. 

Fuel cards for cars

Employees who use their own car and pay for fuel using a fuel card will be required to have the taxable value reported in real-time. If there is an under or over payment of tax due to monthly statements not being received by the employer, this can be corrected using the BiKs update process explained above. 

Coding adjustments

A coding exercise will be run by HMRC just before mandatory payrolling is introduced in April 2027. All BiKs will be taken out of employee tax codes so that they are taxed correctly when BiKs are reported in real-time.

However, as part of this work HMRC will retain the current process of collecting under payments from a previous year. This means as part of the coding exercise HMRC’s systems will not remove underpayments of tax from a previous tax year from tax codes (for example additional tax due on a BiK or expense).

Employer-provided loans and accommodation

Employers will have the option to voluntarily payroll these BiKs from April 2027.

To enable voluntary payrolling of these BiKs, we will permit the use of estimated figures to be included in the taxable value calculation within the tax year.

Where the cash equivalent changes, any under or overpayments of tax can be accounted for either by adjusting the amount of BiK to payroll in future pay periods, or by using the BiKs update process described above.

5. Future updates and timeline of delivery

We will be considering all feedback received between now and Autumn Budget 2025 to reach final policy decisions which will help HMRC to draft legislation, guidance and technical specifications for the new process.

The following table shows the timeline of what we expect to deliver between now and April 2027. 

Action	Date
HMRC will consider all feedback received from impacted stakeholders to support HMRC’s drafting of legislation, guidance and technical specifications	April – Autumn 2025
Draft legislation to be published alongside draft guidance for consultation	Autumn 2025
Initial software technical information to be  made available to software developers for feedback	December 2025
Responses to the consultation of draft legislation and guidance to be considered	February 2026 to April 2026
Updated legislation and guidance to be published	July 2026
Primary and secondary legislation to be laid before parliament	In line with 2026 Finance Bill timings
RTI technical specifications to be published	Second half of 2026
Voluntary registering for the payrolling of loans and accommodation in April 2027 to 2028 to go live	November 2026
Voluntary registering for the payrolling of loans and accommodation in April 2027 to 2028 to close	April 2027
Mandating Payrolling of BiKs planned to go live	April 2027

6. What to do if you have questions or concerns

We are very grateful to all the stakeholders that took part in our informal feedback sessions at the end of 2024. We will continue to work with affected stakeholders to ensure that mandating the payrolling of BiKs delivers benefits for our customers as well as HMRC.

If you have any queries, comments or feedback about any of the points raised in this Technical Note, then please email HMRC

During the development of this policy and associated processes and guidance, we will not be able to respond to emails directly. Instead, we will use those comments when considering future updates. This will help ensure that the same information is made available to all interested parties at the same time. 

Customers with questions about their own tax affairs should contact HMRC in the usual way.

Annex: Additional BiKs fields likely to be required on FPS returns

The potential fields below represent what is currently collected on the P11D and P11D(b) forms, excluding company car fields as this is already available in the FPS. The intention is to not require more information than what is set out below, and this will be confirmed once technical specifications are produced in the second half of 2026.

Employers will only be required to complete the relevant field in relation to the benefits they have provided to their employees, for example if no living accommodation has been provided, employers will not be required to add any data to that section of the FPS.

Benefit Type A - Assets transferred

Cars

Cost/market value

Cash equivalent (Class 1A NIC)

Precious metals

Cost/market value

Cash equivalent (Class 1A NIC)

Property

Cost/market value

Cash equivalent (Class 1A NIC)

Other

Cost/market value

Cash equivalent (Class 1A NIC)

Total cash equivalent for pay period

Year-to-date figure

Total cash equivalent

Benefit Type B – Payments made on behalf of employee

Accountancy fees

Cost/market value

Domestic bills

Cost/market value

Private car expenses

Cost/market value

Private education

Cost/market value

Season tickets

Cost/market value

Other

Cost/market value

Tax on notional payments not borne by employee within 90 days of receipt of each notional payment

Total cash equivalent for pay period

Year-to-date figure

Total cash equivalent

Benefit Type C – vouchers or credit cards

Gross amount

Cash equivalent

Total cash equivalent for pay period

Year-to-date figure

Benefit Type D – living accommodation

Cash equivalent of accommodation (Class 1A NIC)

Total cash equivalent for pay period

Year-to-date figure

Benefit Type E – mileage allowance

Taxable amount of car and mileage allowances paid for employee’s own vehicle, and passenger payments, in excess of the maximum exempt amounts

Total cash equivalent for pay period

Year-to-date figure

Engine size (CC)

Amount paid by employee for private use of car

Total cash equivalent for pay period

Year-to-date figure

Total cash equivalent of all cars available in tax year XX to XX

Benefit Type G – vans

Total cash equivalent of all vans (Class 1A NIC)

Total cash equivalent for pay period

Year-to-date figure

Total cash equivalent of fuel for all vans (Class 1A NIC)

Total cash equivalent for pay period

Year-to-date figure

Benefit Type H – Interest-free and low interest loans (if the total amount outstanding on all loans does not exceed £10,000 at any time in the year, there is no need for details in this section)

Loan description or reference number

Number of joint borrowers

Amount outstanding at 5 April (year) or on the date loan was made, if later

Amount outstanding at 5 April (year) or at date loan was discharged, if earlier

Maximum amount outstanding between 6 April (year) and 5 April (year)

Total amount of interest paid by the borrower between 6 April (year) and 5 April (year)

Date loan was made in (tax year to tax year) if applicable

Cash equivalent of loans after deducting any interest paid by the borrower

Date loan was discharged in (tax year to tax year) if applicable

Total cash equivalent for pay period

Year-to-date figure

Benefit Type I – private medical or insurance

Cost to you

Cash equivalent

Total cash equivalent for pay period

Year-to-date figure

Benefit Type J – relocation expenses

Excess over £8,000 of all qualifying relocation expenses payments and benefits for each move, for example if £8,500.00, enter 500.00 (Class 1A NIC)

Total cash equivalent for pay period

Year-to-date figure

Benefit Type K – Services Supplied

Cost to you

Cash equivalent

Total cash equivalent for pay period

Year-to-date figure

Benefit Type L – Assets placed at employees disposal

Holiday

Cost of the Benefit

Timeshare

Cost of the Benefit

Aircraft

Cost of the Benefit

Boat

Cost of the Benefit

Corporate hospitality

Cost of the Benefit

Other

Cost of the Benefit

Total cash equivalent for pay period

Year-to-date figure

Cash equivalent

Benefit Type M – Other Class 1A items

Subscription and fees

Cost to you

Cash equivalent

Education assistance

Cost to you

Cash equivalent

Non-qualifying relocation benefits

Cost to you

Cash equivalent

Stop loss charges

Cost to you

Cash equivalent

Other Class 1A Items

Cost to you

Cash equivalent

Total cash equivalent for pay period

Year-to-date figure

Benefit Type M – other non-class 1A items

Subs and professional fees

Cost to you

Cash equivalent

Nursery places

Cost to you

Cash equivalent

Educational assistance

Cash equivalent

Cost to you

Loans written off or waived

Cash equivalent

Cost to you

Cash equivalent

Income tax paid but not deducted from director’s remuneration

Cash equivalent

Total cash equivalent for pay period

Year-to-date figure

Benefit Type N – Expenses payment made on behalf of the employee

Travelling and subsistence payments

Cost to you

Taxable payment

Entertainment

Cost to you

Taxable payment

Payments for use of home telephone

Cost to you

Taxable payment

Non qualifying relocation expenses

Cost to you

Taxable payment

Other expenses

Cost to you

Taxable payment

Total taxable payment for pay period

Year to date figure

Total taxable payment

New Class 1A NIC on BiKs data fields

Total Class 1A on BiKs Pay Period

Total Class 1A on BiKs Year to Date

Class 1A on BiKs Adjustment Box