Why 2027 BIK reforms are concerning HR and reward leaders

From April 2027, mandatory payrolling of benefits-in-kind arrives. While most of the conversation has focused on payroll, Avantus’ Gina Neale explains what this now means for HR and reward leaders.

Whilst many teams are already ahead of this, for some payroll teams the remaining work is significant - new reporting requirements, new data flows, a phased rollout starting with company cars, vans and medical benefits, with most others following in 2028.

But there's a parallel challenge that's getting far less attention: what it means for employees, and therefore for HR and reward leaders.

In addition, this will gain the attention of your employees. During the first year of transition, many will effectively be taxed twice, still settling arrears on last year's benefits under the old system, while simultaneously paying monthly deductions on their current year's benefits under the new one, which is the true reason pay will appear to be reduced.

The payroll mechanics follow a phased timeline. The employee experience doesn't. It begins the moment the first deduction lands on a payslip.

The deduction nobody used to notice

Today, tax on employee benefits is collected by an adjustment to the tax code and deducted retrospectively. From April 2027, the cost appears on the payslip, a visible deduction, every month, sitting directly below salary. That change matters because visibility changes behaviour.

For benefits employees clearly value and understand, like a company car, the deduction is unlikely to come as a surprise. The value exchange is clear. But even benefits employees genuinely want, like private medical insurance, can feel different once a monthly cost appears on their payslip.

Multiply that across a workforce, and the benefits you've spent years building could become the benefits people start abandoning, the moment their cost becomes visible.

The consequences for HR and reward

The tax mechanics, cash flow implications and penalty risk sit with payroll and finance. What sits with HR and reward is harder to fix and easier to overlook.

Perception shifts, even when nothing else does. The benefit hasn't changed. Its value hasn't changed. But the way an employee experiences it has changed completely, from invisible to visible, from abstract to monthly. A tax cost that previously felt distant becomes immediate, particularly during a period of continued pressure on household finances. That shift in perception is entirely yours to manage, and it starts the moment the first payslip lands.
Total reward statements stop being nice-to-have. If employees can see, clearly, that their benefits are worth thousands on top of their salary, a small deduction barely registers. If they can't, it feels like an unexplained pay cut. That communication gap already exists: only 44% of employees believe they fully understand all elements of their reward package, according to Group Risk Development (GRiD) data. From April 2027, visible deductions will make that gap harder to ignore.

Here's what you can do now

Final HMRC specifications are due later in 2026. That's not a reason to wait. It's the reason to start now, while there's still time to shape the outcome rather than react to it.

Identify inconsistencies in benefits data now. Benefits data often sits across multiple platforms, HR systems, third-party suppliers and spreadsheets, and few organisations have checked whether those versions agree. From April 2027, whatever payroll submits becomes the official truth. Find the gaps now and fix them.
Know which benefits are about to become visible and decide if they deserve to be. Rank your benefits by how big the new deduction will be, and how well employees currently understand them. Well-understood, well-used benefits will be fine. The ones that aren't are the ones to redesign, relaunch, or retire before employees do it for you.
Put a total reward statement in front of every employee. This is the single most important thing on this list. If you don't have one, start this year. If you do, make sure people are actually reading it.
Arm your managers. The question "why has my payslip changed?" will land on line managers first, long before it reaches HR. A short FAQ and a 30-minute briefing is the difference between a confident answer and a confidence problem for your whole benefits scheme. With a phased rollout, different employees will see deductions at different times. Make sure your managers know which benefits are in scope from April 2027, which follow in 2028, and which remain outside mandatory payrolling for now, such as employer-provided loans and accommodation.
Make sure you have a seat at the payroll conversation. The technical integration work belongs to payroll and IT, but HR and reward leaders need to be in the room. You know which benefits are in scope and how employees will react. If that conversation happens without you, the employee experience gets built in as an afterthought.

The choice facing HR and reward leaders

Every organisation will go through this transition. Those who haven't prepared will experience it as a payroll change that becomes an employee relations problem, with people not understanding the deductions, becoming anxious, and potentially stopping using benefits altogether.

Those who prepare will have a total reward story already communicated to employees, so they understand exactly what they're getting and why it's worth it.

The difference between those two outcomes isn't decided in April 2027. It's decided now.