Payroll and benefits: register before April 2026

Payrolling benefits-in-kind (BiKs) has moved from ‘nice to have’ to ‘smart compliance planning’. 

By payrolling benefits, the taxable value of many benefits, such as private medical insurance or gym membership, is taxed in real time through PAYE, instead of being reported after the year-end via a P11D. HMRC’s guidance highlights that payrolling can reduce P11D reporting and help keep employees’ tax more up to date. 

Payrolling of benefits is still voluntary in current 2026/27 tax year. This means that if a business wants to payroll benefits for the first time in the current tax year, it must register with HMRC by 5 April (the end of the current tax year). Registration is done online via PAYE Online. HMRC suggests, however, that a business should check that its payroll software can handle the correct calculations and reporting.

That deadline matters because payrolling isn’t just a ‘payroll switch’ – it changes how benefit data is captured, validated and fed into RTI. A smooth implementation usually depends on three things.

1) Clear benefit scope (what will be payrolled?)

Most BiKs can be payrolled, but there are practical exceptions. Even where BiKs are taxed through payroll, employers still typically need to complete the form P11D(b) to report and pay Class 1A NIC on the cash equivalent of benefits. And any benefits not payrolled still need reporting via P11D.

2) Better data discipline 

Because tax is collected during the year, errors in benefit values, eligibility dates, or leaver information show up immediately in net pay. The operational fix is simple but often overlooked: agree a single ‘source of truth’ for benefit changes, set cut-off dates for submissions each pay period, and define who signs off valuations (especially for anything that varies during the year).  Payroll teams will need to work closely to ensure that the correct monthly data is translated to the payslips.

3) Software and process readiness (test before April)

HMRC specifically flags the need to confirm software capability (including Basic PAYE Tools where relevant). A short pilot run, testing benefit files, employee communications and reporting outputs, can prevent messy corrections later.

Finally, it’s worth keeping one eye on the horizon: HMRC has announced that mandatory payrolling of BiKs and taxable expenses is now expected from April 2027, giving employers time to prepare – with those who register and pilot earlier spreading the change and reducing year-end pressure.

Outsourcing your payroll to Kreston Reeves will make it easier for businesses and clearer for employees with real-time data in our dedicated portal.

For more information contact our payroll team here.