The tax rules on Benefits in Kind (BIKs) are changing.
From 6 April 2027, Phase 1 of HMRC’s ‘Mandatory payrolling of Benefits in Kind and expenses’ comes into force for company cars, vans, fuel and medical benefits.
Mandatory payrolling for most other benefits will be introduced from April 2028.
Employers will need to begin preparing for the changes, which will include ensuring that payroll software and processes are correctly set up. However, to avoid employees being surprised, employers should also consider communicating the changes to their staff.
Early communication is key to making sure staff will understand how this change may affect their tax code and take-home pay.
Your staff will need to understand that from April 2027, the tax due on the above BIKs will not be collected by including an estimated value of their benefits in a tax code during the year with any balancing amount of tax due paid in arrears.
Instead, the tax due on the above BIKs will be paid in real time in the year they are received.
What this means in practice is that some employees may end up paying tax in real time on some benefits they are receiving in 2027-28 while, at the same time, be catching up with payments for BIKs from the previous tax year 2026-27. It might seem that they are paying tax twice which is not the case but it will impact their cashflow.
If this causes hardship, employees are advised to contact HMRC to discuss their options based on their circumstances.
