Mandatory Payrolling of Benefits in Kind: What UK Employers Need to Know Before April 2027

Introduction

The UK Government has confirmed a phased introduction of mandatory payrolling of Benefits in Kind (BiKs), giving employers more time to prepare for the new reporting system.

Rather than introducing the changes all at once in April 2027, HMRC will now roll them out in two stages. This phased approach aims to make the transition smoother while modernising the way employee benefits are taxed.

If your business provides company cars, private medical insurance, vans, or other employee benefits, understanding these changes now will help you avoid compliance issues and prepare your payroll systems in advance.

What is Payrolling of Benefits?

Payrolling Benefits in Kind means that the taxable value of employee benefits is taxed through the payroll during the tax year instead of being reported after the year ends using a P11D form.

Instead of employees receiving a tax adjustment later, tax is collected in real time through PAYE.

Example

Suppose an employee receives private medical insurance worth £600 per year.

If they are paid monthly, the payroll system will add £50 each month to their taxable pay for PAYE purposes. Income tax is then calculated on the employee’s salary plus the monthly benefit value.

It’s important to note that although the benefit is taxed through payroll, most Benefits in Kind remain subject to Class 1A National Insurance, not Class 1 National Insurance.

Why Has HMRC Delayed Full Mandatory Payrolling?

Originally, mandatory payrolling was scheduled to apply to all Benefits in Kind from 6 April 2027.

Following consultation with employers, payroll providers and professional bodies, HMRC has decided to introduce the changes gradually.

The phased approach provides employers with additional time to update payroll software, internal processes and employee communications before all benefits become mandatory.

Phase One: Changes From 6 April 2027

From 6 April 2027, mandatory payrolling will apply to the following employee benefits:

• Company cars
• Company car fuel
• Company vans
• Van fuel
• Private medical insurance and medical benefits

Employers providing these benefits must payroll them automatically.

There is no need to register these mandatory benefits with HMRC.

Benefits That Remain Optional During 2027/28

For the 2027/28 tax year, employers may still choose whether to payroll certain other benefits.

These include:

• Taxable cheap loans
• Living accommodation
• Other Benefits in Kind not included in Phase One

If an employer wishes to payroll these benefits voluntarily, they must register with HMRC before the start of the tax year.

Phase Two: Changes From 6 April 2028

From 6 April 2028, mandatory payrolling will extend to almost every remaining Benefit in Kind.

However, two categories will continue to be excluded from mandatory payrolling:

• Taxable cheap loans
• Living accommodation benefits

These may still be payrolled voluntarily, provided the employer has registered before the beginning of the relevant tax year.

HMRC has indicated that these benefits will become mandatory at a later date.

How Will Class 1A National Insurance Change?

Under the current system, employers calculate their Class 1A National Insurance Contributions (NICs) after the end of the tax year using the P11D(b) form.

Payment deadlines are:

• 22 July following the tax year if paying electronically
• 19 July if paying by cheque

From April 2027

The process changes significantly.

Employers will report Class 1A National Insurance through Real Time Information (RTI) alongside their monthly payroll submissions.

This means:

• Monthly reporting instead of annual reporting
• Monthly payments alongside PAYE
• Earlier payment deadlines
• Potential cash flow implications for businesses

During the transition period, employers may pay some Class 1A NIC monthly while continuing to pay other amounts after the end of the tax year.

What Happens to P11D Forms?

One of the biggest changes is the gradual removal of the traditional P11D process.

Where a benefit is payrolled, it no longer needs to be reported on a P11D.

From the 2028/29 tax year, the P11D will only be required where employers have not chosen to payroll:

• Taxable cheap loans
• Living accommodation benefits

Similarly, the P11D(b) will only be used to calculate Class 1A National Insurance on those benefits that remain outside mandatory payrolling.

For most employers, annual Benefits in Kind reporting will eventually become a thing of the past.

How Should Employers Prepare?

Although the first mandatory changes do not begin until April 2027, businesses should begin preparing well in advance.

Consider taking the following steps:

• Review all employee Benefits in Kind.
• Identify which benefits will become mandatory in 2027.
• Speak with your payroll software provider about system readiness.
• Update payroll procedures and internal controls.
• Inform employees about how these changes may affect their payslips.
• Plan for monthly Class 1A National Insurance payments to manage cash flow effectively.

Early preparation will make the transition much smoother and reduce the risk of payroll errors.

Final Thoughts

Mandatory payrolling marks one of the biggest changes to employee benefit taxation in recent years. While the phased rollout provides employers with additional preparation time, businesses should not wait until the last minute.

Reviewing your payroll processes now, ensuring your software is compatible and understanding the reporting changes will help your business remain compliant and avoid unnecessary administrative burdens.

If you’re unsure how these changes will affect your business, seeking professional payroll or tax advice can help you prepare with confidence.

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