HMRC has created a special page on their website, devoted to mandating the reporting of benefits in kind and expenses through payroll software from 2027. The guidance does not answer every question as yet but will no doubt be amended many times on the way to implementation.
The guidance is aimed at employers, payroll professionals, software providers and tax agents, to help prepare for the introduction of this change. It provides an overview of how the new reporting system is set to operate from April 2027 onwards to help businesses prepare for the new system. However, the policy positions will not be finalised until legislation and guidance is published.
The basic idea is that most benefits and expenses, Income Tax and Class 1A National Insurance contributions (NICs) will need to be reported through RTI and paid in real time from April 2027.
Employers will also be able to payroll employment-related loans and accommodation on a voluntary basis from April 2027. There are some less common cases, such as tax award schemes and third-party benefits, which are not covered in the guidance.
The general rule is that employers will need to divide the annual cash equivalent of the benefit by the number of relevant pay periods for each employee and the resulting figure for each pay period will be liable to Income Tax, in a similar way to earnings. This figure will also be liable to Class 1A NICs for each pay period, which must be reported alongside employee earnings in each pay period. If the benefit value is not known at the beginning of the year, then employers must estimate the taxable value and divide this by the number of relevant pay periods.
If the cash equivalent changes during the year, then the employer must work out the revised taxable amount to payroll for the remaining pay periods for that tax year.
HMRC recognise that there may be situations where it is not known until sometime after the tax year has started that an employee has received a benefit. In these cases, the benefit can be reported as soon as possible in the remaining pay periods for that tax year. Earlier submissions do not need to be amended if the benefit is reported across the remainder of the relevant tax year.
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