Payrolling benefits in kind

What’s mandatory and when - and what to do about it

Mandatory payrolling is being introduced in two phases from 6 April 2027. This replaces the earlier requirement for nearly all benefits to be payrolled from 2027.

Phase 1: Benefits that must be payrolled from 6 April 2027 are company cars; car fuel; vans; van fuel; and employer-provided medical benefits. Globally mobile employees may be voluntarily excluded through a new service available from November 2026.

Phase 2: Most other benefits must be payrolled from 6 April 2028. Loans and accommodation are excluded because of their complexity: payrolling these benefits remains voluntary until further notice.

Payrolling involves reporting and paying Income Tax and Class 1A National Insurance contributions (NICs) for benefits in real time, through payroll software. The cash equivalent of benefits is added to salary on the payslip, and reporting and payment become an ongoing process, instead of a once-yearly P11D reporting activity, with tax paid via coding adjustments or the Self Assessment tax return.

What to do now. Take stock: payrolling means timely, accurate benefits information has to flow into payroll all the way through the year. Getting systems and payroll software ready will be a significant challenge for many businesses. Be aware, too, that two-phase implementation means having to run payrolling requirements alongside P11D reporting for a year.

Voluntary payrolling: Businesses can payroll on a voluntary basis before mandation, even for loans and accommodation. It is a formal process, requiring advance registration with HMRC. Registrations open in November 2026, with a final registration deadline of 5 April 2027. Note that voluntary payrolling is not identical to mandatory payrolling, though it will give something of a dry run.

Cash flow and communications: Paying tax in real time will have major impact as the change beds in. Employees may be paying tax for phase 1 benefits in 2027/28, as well as catching up with arrears of tax for benefits in the previous year. Employees are bound to have queries, and employers will need a communications strategy to deal with this. Employers also see a spike in tax payment. The 2026/27 P11D (b) lump sum payment falls due in July 2027, by which time in-year monthly payment of employer Class 1A NICs, due under the new rules, will already have taken effect. This will need factoring into budgets.

Even with extra time to prepare, payrolling is a major change, and we understand the challenges involved. Together we can make sure your business is ready.