HMRC have announced that mandatory payrolling, originally due to commence in April 2027, will now be introduced in two phases. Phase 1 will continue to be rolled out from 6 April 2027, with Phase 2 commencing a year later on 6 April 2028.
Following feedback from industry experts, HMRC have announced that Mandatory real-time reporting of Income Tax and Class 1A National Insurance Contributions (NICs) for certain Benefits In Kind (BIKs) will now be introduced on a phased basis.
The move to mandatory payrolling replaces the current P11D process for most benefits and expenses, bringing reporting in real time through payroll.
Employers who provide employee benefits will need to:
- Provide taxable values through payroll in real-time.
- Apply PAYE and account for Class 1A NICs through payroll rather than submitting yearly P11D forms.
Phase 1 mandatory payrolling will be rolled out from 6 April 2027 and will include:
- Company cars.
- Car fuel.
- Vans.
- Van fuel.
- Employer-provided medical benefits.
Phase 2 mandatory payrolling will be rolled out from 6 April 2028 and will include most other BIKs, except beneficial loans and living accommodation, which will remain voluntary.
Further technical guidance is expected by July 2026. In addition, HMRC:
- Will continue to engage with stakeholders and industry representatives over the summer before final guidance regarding phase 1 is published to align with Autumn Budget 2026.
- Has indicated it will continue to work with stakeholders throughout summer 2026 to resolve outstanding issues, including the potential to introduce voluntary Class 1A reporting for non-mandated benefits.
- Will continue to work with software providers ahead of Phase 2 implementation on an approach to Real Time Information (RTI) specifications, which will be due to be published as part of the 2027 RTI technical specification publication cycle.
Useful guides on this topic
Mandatory payrolling of benefits from April 2027: Briefing
The government has announced that the mandatory payrolling of Benefits In Kind and taxable employment expenses will not come into force until 6 April 2027. This replaces the earlier date of 6 April 2026, allowing employers more time to prepare for the changes.
Payrolling of benefits
The value of certain taxable Benefits In Kind can be included in taxable pay when calculating the PAYE deducted from payments of wages and salaries to employees.
Employee benefits
What sort of benefits and incentives can an employer provide to their directors and employees? Do benefits form part of an employment contract?
P11D: Reporting benefits and expenses
How do you report benefits and expenses? What is the P11D deadline?
P11D's: Employer's checklist and top tips
Top Tips for employers on preparing form P11D together with a checklist.
External link
Mandatory payrolling of benefits in kind and expenses - interim guidance and legislation