Mandatory Payrolling of Benefits in Kind: What’s Changing from April 2027

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HMRC has now confirmed how mandatory payrolling of benefits in kind will actually land, and it’s arriving in two stages rather than one. From 6 April 2027, most benefits currently reported on a P11D after the year end will instead be taxed through payroll, in real time, as they happen. If you run payroll for a business with directors or employees who get perks on top of salary, this is the biggest change to how those benefits are taxed in years, and there’s a fair amount to get ready.

What’s actually changing

For as long as most employers can remember, benefits in kind have been reported once a year, after the event: a P11D filed by 6 July, Class 1A National Insurance paid by 22 July, and HMRC catching up by adjusting tax codes. Mandatory payrolling of benefits in kind changes that. Instead, employers report the benefit through payroll each pay period, weekly or monthly, using Real Time Information, and the Income Tax and Class 1A NI due on it are collected there and then.

In practical terms, this means the P11D stops being the main event for most employers, and getting each payroll run right, all year, becomes the thing that actually matters.

The two phases

From 6 April 2027: company cars and car fuel, vans and van fuel, and employer-provided medical benefits. Professional bodies covering the change, including the Association of Taxation Technicians, estimate this first phase covers something like 92% of the benefits employers currently provide, so most businesses affected will feel this straight away.

From 6 April 2028: mandatory payrolling will extend to most other taxable benefits in kind that aren’t included in phase one.

Two benefits stay outside the mandatory regime for now: beneficial loans and employer-provided living accommodation. Both remain voluntary, with no date yet set for when (or if) that changes.

Why this is more than a form disappearing

Fewer year-end forms sounds like less work, and eventually it should be. But the trade-off is that employers will need accurate benefit information throughout the year rather than gathering everything together after 5 April. If a benefit changes during the year, the amount being payrolled may need to be adjusted over the remaining pay periods.

There’s a simplification underneath it too: HMRC’s technical work has cut the payroll data fields needed for benefits reporting from over 100 down to around 32, which will make life easier for payroll software once it’s built in. And there’s a grace period for the first year. For 2027/28, HMRC’s guidance says penalties for inaccuracies won’t apply unless there’s evidence of deliberate non-compliance. Late filing and late payment penalties still apply, though. (A grace period for mistakes is not the same as permission to make them.)

One change that catches people out is cash flow. Class 1A National Insurance is currently paid in one go by 22 July after the tax year. Under mandatory payrolling it’s paid through payroll as you go, which could mean paying the old annual bill and the new real-time one in the same year (2027/28). HMRC’s guidance doesn’t spell out that transition yet, so it’s one to build into your forecasts now.

What you can do now

Three things are worth do.ing before April 2027, not after it.

Audit your benefits. List everything the business currently provides and sort it into phase one, phase two, and the two that stay voluntary. Company cars and medical cover need attention first.

Check in with your payroll software. HMRC is working with software providers on the changes, but that doesn’t mean yours is ready. Ask them what they’re building and when, rather than assuming.

Consider getting ahead voluntarily. HMRC has said employers will be able to register from November 2026 to voluntarily payroll other benefits for 2027/28, including loans and accommodation, which otherwise stay outside the regime. If phase two benefits are on your list, starting early gives you a year to iron out the wrinkles before 2028. It’s worth talking through before the registration window opens.

HMRC’s guidance is still interim (the latest update was on 23 September), with final phase one guidance due to line up with the Autumn Budget on 28 October. Given how many times HMRC dates have shifted in recent years, it’s sensible to keep half an eye on that rather than treating April 2027 as carved in stone.

Frequently asked questions about payrolling benefits in kind

What does mandatory payrolling of benefits in kind mean?

It means reporting taxable benefits through your payroll each pay period, instead of on a P11D after the tax year ends. The Income Tax and Class 1A National Insurance on those benefits are reported and paid through payroll as you go, rather than being caught up later through tax codes and an annual payment.

When does mandatory payrolling start, and which benefits does it cover?

From 6 April 2027 it covers company cars and car fuel, vans and van fuel, and employer-provided medical benefits. From 6 April 2028 most other benefits follow. Beneficial loans and employer-provided living accommodation stay voluntary.

Will I still need to file a P11D after April 2027?

For some benefits, yes. Benefits provided in 2026/27 are still reported on a P11D, due by 6 July 2027. After that, the P11D drops away for benefits that are payrolled, but anything not yet in the regime is still reported the old way. That means phase two benefits during 2027/28, and loans and accommodation unless you choose to payroll them.

How does Class 1A National Insurance change?

It moves into payroll. Instead of one annual payment due by 22 July after the tax year, Class 1A on payrolled benefits is reported and paid as you go. In 2027/28 that could mean paying the old annual bill for 2026/27 alongside the new real-time payments, so it’s worth planning cash flow now. HMRC hasn’t yet spelled out the transition in detail.

What happens if I get a payrolled benefit wrong?

You correct it through payroll in real time. For 2027/28, HMRC says penalties for inaccuracies won’t apply unless there’s evidence of deliberate non-compliance, but late filing and late payment penalties still do.

What should employers do now to prepare for payrolling of benefits?

List every benefit you provide and sort it by phase. Ask your payroll software provider what they’re building and when. Consider whether to voluntarily payroll other benefits for 2027/28, as registration opens from November 2026. Then check again after the Autumn Budget on 28 October, when HMRC’s final phase one guidance is due.

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Here’s how we help

For our payroll clients, we’re building this into the plan well ahead of April 2027: auditing which benefits you provide, checking your software is ready, and telling your team what changes on their payslip before it happens rather than after. If company cars, vans or medical benefits are part of your package, it’s worth flagging that to us now. (If you’d like the background on P11Ds as they currently stand, or on company car tax specifically, our guide to the P11D is a good companion read.)

If you’re already working with another accountant, moving over is more straightforward than most people expect, and our guide on how to change accountants walks you through it.

Need our help?

It’s part of our payroll service, and if you’d like us to review what you provide and map it against the new phases, ask us for a fixed-fee quote or call the office on 01904 202237.

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The information in this article was correct on 3 October 2026. It should not be used instead of professional advice.