The UK tax system is getting more digital, and two key changes are on the horizon: the mandatory payrolling of Benefits in Kind (BIKs) and the wider rollout of Making Tax Digital (MTD). Whether you’re a business, charity, sole trader or landlord, understanding these developments now will make compliance easier in the years ahead.
What Are Benefits in Kind and What’s Changing?
Benefits in Kind are non‑cash perks employers give to staff or directors — for example company cars, private medical insurance or fuel benefits. Traditionally these were reported via P11D forms after the tax year, and many employers and charities used this system to reconcile tax due.
From 6 April 2027, most benefits in kind will have to be reported and taxed through payroll software in real time, rather than reported at year‑end. This shift means payroll systems must be able to handle benefit values alongside salary each pay period so that tax is collected as benefits are received rather than after the event.
Some benefits, such as employer‑provided loans and accommodation, will initially remain outside the mandatory regime but can be voluntarily payrolled. This change is part of HMRC’s broader ambition for digital tax reporting, aligning employers’ processes with real‑time data delivery.
Charities and not‑for‑profits that employ staff are equally affected by this change, and the Charity Finance Group highlights that payrolling BiKs will require benefits to be taxed across pay periods rather than being collected later through tax code adjustments.
Making Tax Digital – What You Need to Know
Making Tax Digital is the UK Government’s initiative to modernise tax administration by requiring digital record‑keeping and digital submissions to HMRC using approved software.
MTD originally started with VAT, requiring digital records and submissions for VAT returns. According to the Charity Tax Group, all VAT‑registered charities — like other VAT‑registered organisations — must comply with these digital requirements when submitting VAT returns.
MTD for Income Tax (for self‑assessment) is being introduced in phases, starting April 2026 for sole traders and landlords with qualifying income, with further extensions planned in later years. Under MTD ITSA, businesses are required to keep digital records and submit quarterly updates of income and expenses, followed by a final digital declaration.
Why These Changes Matter
Both real‑time payrolling of Benefits in Kind and the expanded MTD framework are part of a long‑term move to digital compliance. The benefits include:
- Greater accuracy — tax is based on timely data rather than retrospective calculations.
- Clearer payroll and tax records — employers and charities can see taxable values earlier in the year.
- Reduced administrative burden — end‑of‑year processes are streamlined.
For charities, the digital nature of MTD also encourages better bookkeeping and can create efficiencies in areas like Gift Aid handling, VAT partial exemptions and quarterly reporting.
How Friendly Assist Accountancy Can Help
Preparing early gives you confidence and prevents last‑minute hassle. At Friendly Assist Accountancy we help:
- Employers and charities review payroll systems and benefits reporting setups
- Businesses assess whether voluntary payrolling of BiKs makes sense before mandated deadlines
- Sole traders and landlords get ready for MTD Income Tax quarterly reporting
- Organisations choose the right software and workflows for digital compliance
Digital tax reporting doesn’t have to be overwhelming — with the right preparation and support it can improve accuracy and give you a clearer view of your financial position.
If you’d like a tailored review of your payroll or digital tax readiness, get in touch and we’ll create a practical action plan for you.
References
- Charity Tax Group – Making Tax Digital for VAT (charity‑focused digital guidance):
https://www.charitytaxgroup.org.uk/tax/vat/making‑tax‑digital‑vat/ - MHA – Mandatory payrolling of benefits: what charities need to know:
https://www.mha.co.uk/insights/what‑charities‑need‑to‑know‑ahead‑of‑april‑2027 - HMRC – Draft guidance: Getting ready for mandatory payrolling of benefits in kind:
https://www.gov.uk/guidance/draft‑guidance‑and‑legislation‑to‑aid‑preparation‑for‑reporting‑benefits‑in‑kind‑in‑real‑time/getting‑ready‑for‑mandatory‑payrolling‑of‑benefits‑in‑kind - HMRC – Technical note: Modernising the tax system through Making Tax Digital:
https://www.gov.uk/government/publications/modernising‑the‑tax‑system‑through‑making‑tax‑digital