Author: Matt Norton
The move to mandatory payrolling of benefits in kind (BiKs) in April 2027 is one of those changes that sounds straightforward on paper — but quickly becomes complicated once you start working through the details.
While the goal is to simplify how benefits are taxed, for most employers, it's a meaningful shift in how benefits are managed day-to-day. Processes that used to sit at year-end will now need to happen in real time, with knock-on effects across systems, payroll and, ultimately, employee experience.
The good news is there's time to prepare, and the organisations that start early will be in a much better position to manage both the technical change and the impact on their people.
At a high level, this change comes down to three things:
- Benefits being taxed in real time
- Greater reliance on accurate systems and data
- A more visible impact on employees' pay throughout the year
Most of the complexity sits underneath that, but those are the core shifts to keep in mind.
What changes day to day: Moving from year-end to real time
At its simplest, this is a shift from "end-of-year tidy-up" to "getting it right as you go."
Moving away from P11D reporting means benefits data needs to be accurate, up to date and flowing consistently throughout the year. For organisations with flexible benefits schemes, that raises expectations on system capabilities.
It's not just about capturing elections — it's about calculating the value of each benefit correctly and reflecting that through payroll in real time. That includes handling everyday scenarios like joiners, leavers and mid-period changes, as well as applying values consistently across payroll cycles.
Where flex funds or flexible core benefits are in place, there's an added layer of complexity in ensuring those choices translate cleanly into taxable values. Without a dedicated flex platform, much of this responsibility may sit with payroll, often adding pressure to processes that weren't designed for this level of real-time activity.
Managing what happens in each pay period
One area that's easy to underestimate is how much can be processed in a single pay period.
Under PAYE rules, tax deductions can't exceed 50% of an employee's pay. When multiple benefits are taxed in real time, that limit can become relevant more often than expected.
In practice, this may mean spreading tax deductions across multiple pay periods where thresholds are exceeded. While manageable, it can result in adjustments that aren't always obvious to employees, particularly if deductions vary month to month.
Without clear communication, this is the kind of detail that can create unnecessary confusion and frustration.
Why 2026/27 is the one to watch
The 2026/27 tax year is likely to be the most challenging from an employee perspective.
During this period, employees may effectively be taxed on benefits from two different angles at once. Benefits received in 2025/26 will start being collected through tax codes, while 2026/27 benefits may be taxed through payroll.
It's temporary, but it can feel significant if employees aren't expecting it.
For some, the impact will be minimal. For others, it could create noticeable pressure on take-home pay. Employers have an important role to play in identifying those most affected and considering how to support them, whether through awareness, phasing or simply clearer visibility into what's happening.
What this means for employer cost and cashflow
There's also a financial planning element to consider.
The timing of Class 1A National Insurance contributions (NICs) may create overlap, with liabilities across two tax years falling into the same financial period. Combined with tax code adjustments and potential underpayments from previous cycles, this can have a material impact on cashflow if it hasn't been modelled early.
The key here is visibility. Understanding the financial implications up front makes it much easier to plan and avoid surprises.
What still sits at year-end
While payrolling simplifies part of the process, it doesn't remove year-end responsibilities entirely.
Ad hoc or third-party benefits — those outside core systems — will still require an end-of-year reconciliation. And even where all benefits are payrolled, employers must still submit a P11D(b) to account for Class 1A NIC liabilities.
In reality, this becomes a hybrid model: more activity throughout the year, with some structured processes still needed at year-end.
Contracts and stakeholder alignment
These changes may also require a review of how benefits are documented and communicated.
Where salary sacrifice or flexible benefits are referenced in employment terms, updates may be needed to reflect the new approach to taxation. In some cases, employment law advice may be appropriate.
For organisations with union representation, early engagement is equally important. Bringing unions into the conversation early can help set expectations and create a clearer path forward, particularly where employee take-home pay could be affected.
Why communication will make the biggest difference
If there's one factor that will shape how smooth this transition feels, it's communication.
Employees don't need to understand every technical detail, but they do need to know what's changing, when it's happening and what it means for them.
A single announcement won't be enough. A phased approach over several months works best — building awareness, reinforcing key messages and giving employees time to absorb the change.
Clear, consistent communication won't remove the complexity, but it will make it much easier to navigate.
So, where to start?
The key isn't to solve everything at once, but to understand where the pressure points are and start building a plan around them. Here are a few clear solutions to focus on early:
Technology
Communication
Consulting and payroll readiness
April 2027 may feel some way off, but for most organisations, planning should already be underway.
Those who take a proactive approach and see this as an opportunity to modernise how benefits are managed will be in the strongest position. Not just from a compliance perspective, but in how confidently they support their people through the change.
