HMRC confirms phased introduction of benefits in kind payrolling

HMRC has confirmed that the mandatory payrolling of benefits in kind has been delayed and will now be phased in over time, instead of being introduced for most taxable benefits and expenses on a single start date.

The change means employers will have more time to prepare for one of the biggest shifts in employee benefits reporting for many years. However, the revised timetable also means businesses may need to manage both payroll reporting and traditional P11D reporting during the transition period.

What is payrolling benefits in kind?

Benefits in kind, often referred to as BiKs, are non-cash benefits provided to employees or directors. Common examples include company cars, private medical insurance, fuel benefits, beneficial loans and living accommodation.

At present, many employers report taxable benefits after the end of the tax year using forms P11D and P11D(b). These forms must usually be submitted to HMRC by 6 July following the end of the tax year, with Class 1A National Insurance paid by the employer.

Payrolling benefits in kind changes this process. Instead of reporting benefits annually, the taxable value is processed through payroll in real time. This allows income tax to be collected during the tax year, rather than through a later adjustment to the employee’s tax code.

Key changes to mandatory benefits in kind payrolling

Mandatory real-time reporting was originally expected to apply more widely from April 2027, following an earlier delay from April 2026. HMRC has now confirmed that the rollout will be phased to give employers, payroll providers and software developers more time to adapt.

The updated approach significantly reduces the number of benefits included in the first stage of implementation. HMRC has also indicated that fewer Real Time Information data fields will be needed at the outset, which should reduce the initial administrative and software burden for employers.

Phase 1 payrolling benefits from April 2027

From 6 April 2027, mandatory payrolling will apply to a narrower group of benefits. These are expected to include:

• Company cars
• Car fuel
• Vans
• Van fuel
• Employer-provided medical benefits, including private medical insurance

Employers providing these benefits will need to report them through payroll and account for the associated Class 1A National Insurance in line with the new real-time reporting rules.

This means payroll teams should start reviewing their data, systems and internal processes now, particularly where benefit information is currently gathered only once a year.

Phase 2 payrolling benefits from April 2028

Most other benefits in kind are expected to move into mandatory payrolling from April 2028. However, beneficial loans and employer-provided accommodation are not expected to be included in the mandatory regime at this stage and should remain voluntary for the time being.

During the transition, employers may need to operate a mixed system. Some benefits will be processed through payroll, while others may still need to be reported using P11D forms. This could create additional complexity, particularly for businesses offering a wide range of employee benefits.

What does this mean for employers?

The delay gives employers more breathing space, but it should not be seen as a reason to pause preparations. Payrolling benefits in kind will still require accurate, timely and payroll-ready data.

Employers should consider:

• Reviewing which benefits they currently provide
• Checking whether company cars, vans, fuel or medical benefits are offered
• Speaking to payroll software providers about system readiness
• Reviewing benefit data collection processes
• Training payroll, HR and finance teams
• Communicating the changes clearly to employees

Employees may notice changes to payslips and tax codes as benefits begin to be taxed through payroll. Clear communication will be important to avoid confusion.

Do employers still need to file P11D forms?

For the time being, yes. Benefits not included in the first phase may still need to be reported on P11D forms unless they are voluntarily payrolled. Employers already payrolling benefits may be able to continue doing so, but they should check how the new reporting requirements apply to their specific arrangements.

The key point is that the move to mandatory payrolling has not been cancelled. It has been delayed and phased.

Preparing for mandatory payrolling of benefits in kind

Although the phased approach should make implementation more manageable, employers should use the additional time wisely. Waiting until the final months before April 2027 could leave payroll teams under pressure, especially where benefit data is held across different systems or supplied by third parties.

A practical next step is to review your current benefits reporting process, identify which benefits fall into phase one, and confirm what changes will be needed before the start of the 2027/28 tax year.

Need support with payroll or benefits reporting?

If your business provides benefits in kind and you are unsure how the new payrolling rules will affect you, our team can help you prepare. We can review your current P11D process, identify the benefits affected by the phased rollout and support you with payroll and tax compliance ahead of the changes.