Payrolling benefits-in-kind (BIKs) will become mandatory for all UK employers from April 2026, replacing the current manual system – which uses P11D forms – with real-time information. Once fully embedded, the changes will simplify the entire process, improve accuracy and reduce delays.
Currently, employers, including those offering salary sacrifice car schemes, either use manual P46/P11Ds forms to report to HMRC or already carry out payroll the benefit via real-time information processes.
The manual process has often been slow and inefficient. In some instances, it has fallen on the employee to inform HMRC, causing confusion, resulting in inaccurate and inconsistent tax deductions.
This is all set to change under mandatory BIK payrolling, which will undoubtedly bring huge improvements across the board. However, for implementation to be a success, employers need to start preparing as early as possible to give themselves enough time to address any issues.
There are a few misconceptions around the changes, which could impact understanding and compliance. For example, P11D forms themselves are not necessarily becoming obsolete, despite the move to real-time reporting. P11D (b) forms, detailing the specifics of the benefit-in-kind and relevant taxes, will still need to be reported annually to ensure HMRC has accurate records.
HMRC will impose penalties for employers who fail to comply with these changes, either because employers have submitted information late (everything should be done via real-time reporting) and/or because they have failed to submit P11D(b) forms.
Early preparation is key
Employers may want to consider setting an internal deadline to work towards, such as October 2025, six months ahead of the official April 2026 switchover date. This should provide enough time to navigate any issues, challenges or complexities that may arise, while ensuring relevant staff and teams are both trained and prepared for the new system.
Employers looking to outsource payroll, or who currently do so, will still need to ensure that teams responsible for handling the switchover fully understand what is involved.
A significant part of preparing for the changes is the need for employers to either upgrade or replace existing payroll software. Some software may lack the capability to handle ongoing complexities around BIK taxation, particularly as it requires integration with existing real-time payroll systems.
Having early conversations with payroll providers and software suppliers about real-time reporting capabilities, cost and implementation time can ensure employers are ahead of the curve when it comes to compliance. Leaving these conversations too late, or at the same time as everyone else, can result in more delays and increased administrative burdens.
Internal communication is important too. Because employees with a company car pay annual tax on their vehicles, the incoming changes are likely to impact on take-home pay and could cause confusion among affected employees.
So, while there is no legal obligation for employers to communicate such changes, it is considered best practice to do so. It is best for employees to fully understand what the changes entail, the likely timeline of implementation, how it is likely to affect their take-home pay and crucially, that no action is required on the part of the employee: the onus is entirely on the employer to ensure a seamless transition.
Overall, the new changes will ensure greater accuracy and efficiency in BIK reporting, reduce delays and greatly simplify processes for employers.
However, a big part of this depends on early preparation: failure to do so could lead to increased costs, penalties for non-compliance and additional administration burdens.
Successful preparation is therefore much more than just a compliance shift – it is a strategic shift, too. Just as the logistics are important to get right early on, so too are wider conversations around how these new processes and systems align with overall benefit strategies.
As such, employers and HR teams need to review their benefits offerings, look to manage costs and align with the new framework to ensure they remain competitive.
- Cheryl Clements is business development manager at Tusker.
