As of 6 April 2026, HM Revenue and Customs (HMRC) will mandate the inclusion of benefits in kind (BIKs) in payroll systems for all UK employers. This significant shift from the current optional system aims to streamline tax compliance and reduce administrative burdens. Here, Alex Nicholl, Head of Payroll Services and Director of BM Connect, explains what you need to know about these changes and how Beavis Morgan’s partner company, BM Connect, can assist in preparing for this change and managing your payroll efficiently.
Current System and Its Limitations
Currently, employers report most employee benefits using P11D forms, which detail benefits and expenses not processed through payroll. This method requires employees to potentially adjust their tax codes or settle tax dues through self-assessment, creating complexity and administrative challenges.
The Shift to Mandatory Payrolling
The new mandate will eliminate the need for P11D forms for payrolled benefits, as all benefits in kind (BIKs) will be included in the payroll process, with tax calculated in real time. This change is intended to simplify the tax reporting process, reduce errors, and provide more immediate clarity on tax liabilities for both employers and employees.
Please note that if you want to start payrolling benefits in April 2025 then you will need to register to do so through your business tax account by 5 April 2025.
Implications for Employers
- Integration and Compliance: Employers will need to ensure their payroll systems can accommodate the reporting of all BIKs. This may involve system upgrades or integration efforts to handle real-time data efficiently.
- Administrative Relief: The streamlined process aims to reduce the administrative burden on employers who currently manage multiple reporting mechanisms and reconcile data across different platforms.
- Employee Communication: Employers must also focus on communicating these changes effectively to their employees to ensure they understand how their benefits and tax liabilities will be handled moving forward. For example, while employees’ tax liabilities are collected via payroll, there will still be a need to submit an annual P11D(b) return in order to report the employers NIC liability.
How BM Connect Can Help with Mandatory Payrolling of Benefits in Kind
As HMRC mandates the inclusion of all Benefits in Kind (BIKs) in payroll systems by April 2026, BM Connect is ideally equipped to help businesses adapt smoothly to these changes.
- Advanced Payroll Integration: Utilising advanced cloud-based payroll software, BM Connect ensures efficient processing of BIKs in real time, essential for maintaining compliance under the new regulations.
- Expert Compliance and Support: Our experts are proficient in the latest payroll mandates, providing dedicated support to ensure your payroll complies with HMRC regulations, including handling complex payroll elements like auto-enrolment and the apprenticeship levy.
- Stress-Free Payroll Management: Outsourcing your payroll management to BM Connect saves time and simplifies operations, with our team handling all aspects of payroll, making the process efficient and hassle-free.
- Real-Time Reporting and Accessibility: Instant access to payroll reports, payslips, and statistics is available through our industry-leading systems, empowering better decision-making and streamlined operations.
- Customised Solutions and Strategic Planning: BM Connect offers tailored payroll solutions that fit your specific needs and budget, enhancing overall efficiency and employee satisfaction.
- Training and Employee Communication: We provide comprehensive training for your teams and assist in communicating changes effectively to employees, ensuring transparency and maintaining trust.
Conclusion
The move to mandatory payrolling of BIKs marks a significant change in how employers will manage employee benefits. While it promises to simplify aspects of tax compliance, it also requires careful preparation and adjustments to existing payroll practices. BM Connect is ready to guide you through each step of this transition, ensuring that your business remains compliant, efficient, and well-prepared for the future.
For further assistance and to discuss how BM Connect can support your business with specialist outsourced payroll solutions, please contact Alex Nicholl, Payroll Director, BM Connect. You can also download BM Connect’s payroll services information sheet here.
Contact Alex Nicholl
T: 020 7549 2432 | E: anicholl@bmconnect.co.uk
bmconnect.co.uk