The government has confirmed plans to mandate the real-time reporting of most benefits in kind (BiKs) via payroll software starting in April 2026.
Benefits in kind (BiKs), which include non-cash perks like company cars and private medical insurance provided by employers, have traditionally been reported yearly.
The new requirement, published following the Budget, aims to simplify tax and national insurance payments, ensuring that employees are taxed on these benefits more accurately and in line with their actual value when they receive them.
For employers, the change is expected to reduce the administrative burden associated with annual reporting while helping to prevent errors that can lead to unexpected tax liabilities or refund delays. For employees, real-time reporting will enhance the understanding of their tax deductions, because they will see adjustments on their monthly payslips rather than once a year.
The reform also supports HM Revenue and Customs’ (HMRC) ambition to digitise and modernise the tax system, bringing tax processes in line with other real-time financial reporting.
While most benefits in kind will fall under mandatory real-time reporting, two types will initially remain voluntary: employment-related loans and employer-provided accommodation.
According to HMRC, this phased approach allows employers and payroll software providers time to adapt to the changes and gradually integrate these elements.
Under the new system, employers will typically calculate the value of BiKs monthly, to reflect the benefits accurately within each payroll cycle.
For example, if an employee’s BiK value fluctuates or a benefit ends mid-year, the payroll system will make adjustments in real-time. This approach is designed to improve accuracy and reduce the need for end-of-year reconciliations, which often cause delays in tax adjustments and can lead to confusion for both employees and employers.
The calculation of BiKs will follow existing rules, but employers will need to ensure their payroll software can handle these real-time updates. There is also a provision allowing employers to correct any miscalculations within the tax year, rather than waiting until the end of the financial year to reconcile discrepancies.
HMRC stated in a policy paper: “This change will stop four million people from having their income tax collected in arrears which means that they will be paying the right tax at the right time. It will make it simpler for employees to understand what they are paying tax on as the information relating to this will be more accurate and clearer to understand. For HMRC, it will mean we will no longer receive four million end-of-year returns which will ease the pressure on our services.”
HMRC said that payroll software providers will play a central role in the success of this initiative. By mid-2025, it aims to release technical specifications to help software developers ensure that their products are equipped for BiK real-time reporting. These will include guidelines on calculating BiKs, managing tax and NI contributions, and providing adjustments where necessary.
HMRC plans to offer support for employers to adapt to the new system, including updated guidance and possibly training materials. The government is also seeking feedback from employers and payroll providers to identify any potential challenges or areas requiring further clarification. For employers, the change might mean upfront adjustments in processes and payroll systems, but it should ultimately lead to a more streamlined approach to managing employee benefits and related tax obligations.
The government will provide further updates and specific details on the new BiK reporting requirements in the months leading up to April 2026. As employers and software providers prepare for these changes, HMRC will continue to consult with stakeholders to refine and address any outstanding issues
