Are you ready for the mandatory payrolling of benefits in kind?

The mandatory payrolling of benefits in kind has been on the horizon for several years and whilst some organisations have already embraced voluntary payrolling, others have continued to rely on the more familiar P11D process. However, with mandatory payrolling from April 2027, the countdown to change has truly begun.

HMRC has confirmed that mandatory payrolling of benefits in kind will be introduced in phases with the delayed timetable giving employers more time to prepare, but the scale of the change should not be underestimated. For many businesses, this will require a detailed review of payroll processes, benefit data, systems, employee communications and year-end compliance procedures.

Tessa Brown, Tax Advisory Manager explains what this means for your payroll.

What has HMRC announced?

From 6 April 2027, Phase 1 of mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits.

From April 2028, Phase 2 is expected to extend to most remaining benefits in kind, although employment-related loans and living accommodation will remain outside the mandatory regime for the time being.

Alongside the phased timetable, HMRC has indicated that further technical guidance will be published to support employers, payroll software providers and advisers as the new reporting requirements are developed.

What is payrolling of benefits in kind?

Payrolling benefits in kind allows taxable employee benefits to be reported through payroll during the tax year, rather than being reported after the end of the tax year on P11D forms.

In broad terms, the taxable value of the benefit is processed through payroll so that employees pay tax on the benefit in real time, helping to reduce year-end adjustments and improve the accuracy of tax collected.

However, payrolling does not remove all reporting obligations. Class 1A National Insurance contributions will still need to be calculated, paid and reported on Form P11D(b) following the end of the tax year as the payroll deductions do not extend to NIC.

Employers must also still make sure that benefits are correctly valued, accurately processed and properly evidenced.

Employers will also need to communicate the change to employees and, after the end of the tax year, provide details of the benefits that have been payrolled and taxed through payroll.

The challenge of partial payrolling

One of the key practical challenges for employers will be managing a period of partial payrolling. During the transition, some benefits will need to be reported through payroll, while others may continue to be reported through the P11D process.

This mixed environment creates a greater risk of duplication or omission. A benefit that has already been taxed through payroll should not also be reported on a P11D, but benefits outside the mandatory regime must still be identified and dealt with correctly. Payroll, HR, finance, fleet providers, benefit providers and external advisers will need to work together to ensure that benefit data is complete, accurate and available at the right time.

Voluntary registration

Where a mixed portfolio of benefits is provided, an employer can opt to voluntarily payroll those benefits where it is not yet mandatory.

This may ease the administrative burden at the end of the tax year as no P11D’s will then be required but proper planning is needed because this is a is tax year decision so HMRC must be notified of the decision before the start of the year.   HMRC has advised that the notification portal for 2027/28 will open later this year in November.

What should employers be doing now?

Although April 2027 may still feel some way off, reviewing benefit arrangements, implementing system changes and establishing new processes can take time. Employers should consider using the additional preparation period to review the benefits currently provided, assess whether payroll software can support all of the new computation, submission and reporting requirements, agree internal responsibilities between payroll, HR and finance, and plan how employees will be informed about the transition including changes to tax codes and take-home pay.

Employers should also identify any benefits that may require specialist advice, particularly where valuation rules are complex or data is not readily available in real time. Robust controls will be needed to make sure benefits are processed correctly and that Class 1A National Insurance and year-end reporting obligations are not overlooked.

Frequently asked questions

When does mandatory payrolling begin?

Phase 1 begins on 6 April 2027, with Phase 2 expected to follow from 6 April 2028.

Which benefits are included from April 2027?

Company cars, car fuel, vans, van fuel and employer-provided medical benefits.

Which benefits are expected to follow from April 2028?

Most remaining benefits in kind are expected to become subject to mandatory payrolling from April 2028. However employment-related loans and living accommodation are not currently included in the mandatory timetable.

Will employers still need to submit P11D forms?

During the transition, employers may still need to submit P11D forms for benefits that are not payrolled. Even where benefits are payrolled, employers have continuing obligations in relation to employee communications and Class 1A National Insurance, including form P11D(b) reporting.

Can businesses voluntarily payroll benefits before the mandatory deadlines?

Yes. Businesses can choose to payroll certain benefits voluntarily, provided the relevant registration requirements are met.

Need support with the transition?

The transition to mandatory payrolling represents one of the most significant changes to benefit reporting in recent years. Those who start preparing early are likely to find the process far smoother than those who leave it until the last minute.

Whether you’re considering voluntary payrolling, reviewing your current processes or preparing for the upcoming mandatory changes, our Employment Taxes and Payroll specialists can help. Supporting you with benefit reviews, compliance assessments, implementation planning, employee communications and ensuring your reporting processes are fit for the future.

If you would like to discuss how your organisation can prepare for the next phase of payrolled benefits in kind, please get in touch with the Scrutton Bland team by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk.