Mandatory payrolling of benefits in kind: what employers need to do before April 2027

If your business has complex benefits programmes, multiple payrolls, outsourced providers or salary sacrifice arrangements you should act now to avoid compliance risk, employee confusion and last-minute implementation pressure.

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Mandatory payrolling of benefits in kind: what employers need to know

• Mandatory payrolling starts on 6 April 2027, with a second phase from 6 April 2028.
• Phase 1 includes company cars, car and van fuel, company vans, private medical insurance and other employer-provided medical benefits.
• Most remaining taxable benefits move into scope from April 2028, excluding employment-related loans and living accommodation.
• Class 1A NIC will move closer to real-time reporting and payment, creating new pressure on payroll funding, controls and year-end processes.

What is changing for benefits in kind reporting?

Currently, most taxable benefits in kind are reported annually on forms P11D and forms P11D(b), with employees typically paying the associated income tax through adjustments to their PAYE tax codes. 

Under mandatory payrolling, taxable benefits will instead be reported through payroll in real time. The value of a benefit will be added to an employee's taxable pay during the year, allowing Income Tax (and ultimately Class 1A NIC) to be collected as the benefit arises. 

The aim is to improve tax accuracy, reduce reliance on PAYE tax code adjustments and remove some year-end P11D administration. In practice, it also places greater pressure on employers to capture accurate benefits data in-year, apply robust controls and explain the impact clearly to employees.

Mandatory payrolling of benefits in kind: revised timetable

HMRC originally intended to mandate payrolling for most benefits from April 2027. The phased timetable reflects the scale of the operational change for employers, payroll providers and software vendors.

Why employers need to act now

Mandatory payrolling will affect how benefits are valued, approved, reported, funded and communicated. For larger businesses, the risk is not just technical non-compliance; it is disruption across payroll, HR, reward, finance and employee experience.

Key areas to address

• Payroll readiness – making sure benefit values are available before each payroll cycle, with clear cut-off dates, ownership and escalation routes.
• Systems and data quality – ensuring payroll, HR and benefits platforms can capture, validate and report taxable benefit data accurately through RTI.
• Governance and controls – managing joiners, leavers, in-year benefit changes, salary sacrifice arrangements and cases where PAYE cannot fully collect the tax due.
• Employee communications – helping employees understand why benefits appear on payslips, how tax is collected and what this means for net pay.

Employers will also need to provide an annual benefit statement by 31 May after the tax year, replacing the P11D for payrolled benefits. This creates an opportunity to improve how employees understand the wider value and tax impact of their reward package.

The potential benefits for employers and employees

Handled well, mandatory payrolling can reduce P11D administration, improve tax accuracy and give employees clearer visibility of the tax impact of their benefits during the year. Handled late, it could create avoidable pressure on payroll teams, provider relationships and employee confidence.

Mandatory payrolling of benefits: actions to take now

The phased timetable provides some breathing space, but April 2027 is closer than it may appear when you factor in payroll testing cycles, provider lead times, governance changes and employee communication.

Employers should prioritise five areas

1. Identify which benefits fall within Phase 1, Phase 2 or remain outside mandatory payrolling.
2. Assess payroll readiness, including system configuration, RTI reporting and testing requirements.
3. Engage payroll providers, software vendors, benefits administrators and outsourced service providers early.
4. Clarify data flows and ownership between HR, payroll, reward, finance and tax teams.
5. Prepare employee communications, including payslip messaging, FAQs and examples showing the impact on net pay.

How our employment tax and payroll specialists can help

Mandatory payrolling is a business-wide compliance and transformation project. Preparing now will help employers reduce risk, protect employee confidence and build a more efficient benefits reporting process.

Our employment tax and payroll specialists work together to help organisations plan, implement and manage the transition effectively, including support to:

• Assess readiness and identify implementation gaps;
• Review benefits, reward structures and payroll processes;
• Design compliant operating models, governance and controls;
• Support payroll configuration, systems implementation and employee communications.

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