Ahead of the mandatory move to payroll all Benefits-in-Kind (BIKs) by April 2026, Cheryl Clements, business development manager at Tusker – and an expert on P11Ds – looks at why it’s so important for employers to start preparations early.

Cheryl Clements, business development manager, Tusker

The clock is ticking. By April 2026, all UK employers must payroll Benefits-in-Kind (BiK), marking the end of the traditional P11D form as we know it. On paper, this shift towards real-time taxation promises simplicity and modernisation. But beneath the surface, it’s a complex transformation that demands immediate attention from HR and finance teams.

This isn’t just a compliance update – it’s a strategic shift in how benefits are managed, reported and understood across the workforce. And those who leave preparations to the last-minute risk more than a few payroll headaches. Errors, HMRC penalties, employee confusion and strained internal resources are all on the line if organisations aren’t ready in time.

Back to basics

Traditionally, most employers have reported BiKs annually via manual P11D forms or P46(Car) submissions, often relying on employees themselves to communicate tax information to HMRC. This system, though familiar, has long been inefficient and prone to errors.

From April 2026, however, benefits such as company cars, private medical insurance and more must be taxed in real time through payroll. That means tax will be applied when employees are paid – bringing BiK into the same pay cycle as salaries and bonuses. It’s a cleaner, more transparent approach but one that introduces new complexities.

It’s important to note that while the traditional P11D form is being phased out, P11D(b) forms – used to report Class 1A National Insurance Contributions – will still need to be submitted annually. The change is not as binary as some headlines suggest, and misconceptions here could confuse even experienced HR professionals.

Software systems: fit for the future?

At the heart of this reform lies technology. Many current payroll systems aren’t fully equipped to handle the nuances of BiK payrolling. This is especially true for salary sacrifice schemes, where the interaction between gross pay, taxable benefit value and National Insurance contributions becomes more complex.

For some employers, this will require a complete overhaul of their payroll software. For others, it may require substantial upgrades or integrations. Those outsourcing payroll shouldn’t assume they’re off the hook. It’s essential that external providers fully understand the implications of real-time BiK taxation and can deliver compliance from day one. These conversations should be happening now, not in 2026 when every business in the UK is clamouring for the same support.

Communicating change internally

The success of this transition isn’t just about systems – it’s about people, too. One of the most overlooked aspects of the BiK payrolling shift is how it will affect employee understanding and, potentially, morale.

Consider car schemes under salary sacrifice arrangements. With BiK tax now deducted at source, employees may notice subtle changes to their take-home pay. If not communicated clearly, this could cause confusion, concern or even resistance. HR teams should be proactive in briefing staff about what’s changing, when it’s happening and what it means for their pay. Crucially, employees must understand that they do not need to take any action – the responsibility lies with the employer. Transparent, early communication will go a long way in maintaining trust and avoiding unnecessary worry.

More than compliance

There’s a tendency to view the 2026 reform as a purely technical update. But in reality, it’s a chance for organisations to take a step back and reassess their entire benefits strategy. As BiKs become more integrated into payroll, visibility increases. This opens the door for smarter cost management, streamlined processes and a more strategic approach to total reward offerings. Employers that seize this opportunity can enhance their competitiveness in the talent market while also ensuring compliance.

Equally, forward-thinking organisations may use this shift to explore new types of benefits that align more closely with employee expectations and business priorities. Whether it’s electric vehicle salary sacrifice schemes, wellbeing allowances or other flexible perks, aligning your benefits strategy with this new framework can create long-term value.

While 2026 may feel like a distant deadline, the changes it brings will require operational, technological and cultural shifts. Employers that prepare early will enjoy a smoother transition, avoid costly penalties and be better placed to offer a compelling, future-proof benefits package.

The best advice? Set internal deadlines well ahead of the statutory date; aiming for October 2025 is considered sensible. Engage with payroll providers, audit all systems, train necessary teams and open up honest conversations with the workforce.

Payrolling BiKs may be mandatory, but how well you handle it is entirely in business leaders’ hands.