Payrolling benefits marks a fundamental shift away from the traditional P11D process. Instead of reporting benefits at year end, these will increasingly be processed through payroll, with tax collected in real time.

Phased Introduction Confirmed from April 2027

HM Revenue & Customs (HMRC) has confirmed that the move to mandatory payrolling of Benefits in Kind (BiKs) will now be introduced on a phased basis, providing employers, payroll providers and software developers with additional time to prepare for the changes.

Phase 1 – from 6 April 2027
Mandatory payrolling will apply to:

• Company cars and car fuel
• Company vans and van fuel
• Employer-provided medical insurance

For many employers, this means action is still needed in the short term.

Phase 2 – from 6 April 2028

Mandatory payrolling will be extended to include most remaining benefits, except beneficial loans and living accommodation, which will remain voluntary.

Why the change?

Following feedback from employers and payroll providers, there were concerns about whether payroll systems were ready to handle the full range of benefits from day one.

As a result, HMRC has taken a more practical approach by staggering the rollout. This should reduce pressure on payroll processors and give software providers more time to adapt.

Further technical guidance from HMRC is expected by the end of July 2026.

What should employers be doing now?

Although the timeline has shifted, early preparation is still key. We recommend focusing on:

• Reviewing all employee benefits to identify those affected by mandatory payrolling
• Checking whether your current payroll setup can support real-time benefit reporting
• Speaking with your payroll provider or software provider about readiness

Starting this work now will make the transition significantly smoother.

Need Support?

Our payroll team is actively monitoring developments and further guidance from HMRC.

If you would like to understand how these changes may affect your business, or would like support preparing for mandatory payrolling of benefits, please get in touch with a member of our payroll team.