HMRC Confirms Mandatory Real-Time Benefits in Kind Reporting from April 2027
What Happened
HMRC has published draft interim guidance and legislation confirming the phased introduction of mandatory real-time reporting (payrolling) of Income Tax and Class 1A National Insurance contributions for benefits in kind (BiKs) and taxable expenses. The changes will be implemented in two phases:
- Phase 1 – April 2027: Covers company cars, car fuel, vans, van fuel, and employer-provided medical benefits.
- Phase 2 – April 2028: Covers most other BiKs, excluding loans and accommodation (which remain voluntary).
HMRC will remove 94 RTI data fields related to BiKs and update technical specifications for Full Payment Submission (FPS) returns. Additional data fields will be required for real-time reporting. Final guidance is expected by July 2026, with draft data item guidance to be published sooner.
Why It Matters
This move represents a fundamental shift in UK payroll compliance. Currently, most employers report BiKs annually via forms P11D and P11D(b). Mandatory payrolling will require employers to calculate and report the taxable value of benefits in real time through payroll software, alongside salary. This aims to streamline tax reporting, reduce errors, and give employees more accurate tax deductions throughout the year.
For employers, the key implications include:
- Payroll software upgrades: Systems must be updated to handle new data fields and real-time calculations for BiKs.
- Process changes: HR and payroll teams must capture and report benefit values on a pay-period basis.
- Class 1A NICs: Employers must report Class 1A National Insurance contributions through payroll, not just annually.
- Penalties: HMRC has confirmed penalties will apply for non-compliance, with transitional arrangements to ease the shift.
The phased approach is designed to give businesses time to adapt, but preparation must begin now. Employers should review their current BiK reporting processes, engage with payroll software providers, and assess the impact on internal systems.
What Organizations Should Do
- Audit current BiK reporting: Identify all benefits provided, including those moving to mandatory reporting in Phase 1 and Phase 2.
- Engage payroll software providers: Confirm that your software will support the new real-time reporting requirements and additional FPS data fields.
- Update internal processes: Establish workflows to capture benefit values (e.g., car fuel, medical insurance) each pay period.
- Train payroll and HR teams: Ensure staff understand the new obligations, including real-time Class 1A NIC reporting.
- Monitor HMRC guidance: Watch for draft data item guidance and final guidance due by July 2026.
- Consider voluntary payrolling now: Employers not already payrolling BiKs may wish to implement voluntary payrolling ahead of the mandate to smooth the transition.
For organizations managing complex payroll across multiple ERP systems, continuous compliance monitoring tools like AIGovHub's CCM Module can help automate controls testing and evidence collection, ensuring payroll processes align with HMRC requirements.
Related Resources
This content is for informational purposes only and does not constitute legal advice. Organizations should verify current timelines and consult with qualified professionals for specific compliance obligations.