Mandatory payrolling of benefits in kind will begin in stages rather than applying to every benefit at once. From 6 April 2027, employers will have to payroll five categories of benefit. Most other benefits are expected to follow from 6 April 2028.
The extra preparation time is welcome, but this is still a significant payroll change. Employers need accurate benefit data much earlier and a reliable way to move that information between HR, finance and payroll.
What is mandatory payrolling of benefits in kind?
Benefits in kind are non-cash benefits provided to employees or directors, such as a company car or private medical cover. Under the current voluntary payrolling system, an employer can register eligible benefits with HMRC before the start of a tax year. The taxable value is then included in payroll so the employee pays Income Tax during the year.
Employers that do not payroll a benefit normally report it after the tax year using the relevant P11D process. Mandatory payrolling will make real-time reporting the standard for the benefits included in each phase. Until the new rules apply, employers should continue to follow the existing reporting and Class 1A National Insurance procedures.
Phase one: benefits affected from 6 April 2027
HMRC has confirmed that mandatory payrolling will first apply to:
- company cars;
- company car fuel;
- vans;
- van fuel; and
- employer-provided medical benefits.
These benefits should be the first priority for a payroll-readiness review. Employers will need the correct taxable value, the dates on which a benefit starts or changes, and any employee contributions in time for the relevant pay run.
Phase two: most other benefits from April 2028
Most remaining benefits in kind are due to enter mandatory payrolling from 6 April 2028. This second phase gives HMRC and employers time to learn from the first year and deal with benefits that need more complex calculations or data.
Beneficial loans and living accommodation will remain outside the mandatory service for the time being. Employers will be able to choose voluntary payrolling for these and other benefits that are not included in phase one. HMRC says registration for voluntary payrolling in the 2027–28 tax year will open in November 2026.
HMRC is also considering whether the voluntary service can be expanded to deal with Class 1A National Insurance in real time. Employers should not redesign that part of their process until the final rules and technical guidance are available. The current position is set out in HMRC Agent Update 145.
What employers should do now
1. Build a complete benefits register
List every benefit provided to employees and directors. Record who receives it, how its taxable value is calculated, when the benefit changes and where the supporting information is held. Separate the five phase-one benefits from those expected to move later.
2. Map the data journey
Identify who supplies each figure and when payroll receives it. Car changes, medical policy renewals and employee contributions often sit with different teams or providers. Agree cut-off dates and a correction process so late information does not become a recurring payroll problem.
3. Check payroll software and provider support
Ask your software supplier or payroll provider when its mandatory-payrolling features will be available. Confirm how benefits will appear on payslips, how in-year changes will be handled and what reports will support reconciliation. Our payroll and CIS team can help you review the practical impact on your process.
4. Plan employee communication
An employee may see a change in take-home pay when a benefit starts to be taxed through payroll. Explain what is changing, when it will happen and who can answer questions. Clear communication reduces confusion and avoids the impression that the benefit itself has changed.
5. Reconcile payroll, benefit and tax records
Design a monthly check between the benefits register, payroll reports and the general ledger. A year-end review alone may be too late to correct repeated errors efficiently. Keep evidence for calculations, employee contributions and changes throughout the year.
Should you start voluntary payrolling early?
Some employers may benefit from using the voluntary system before it becomes mandatory. It can spread an employee’s tax across the year and provide a useful test of data and payroll controls. However, it also creates new monthly deadlines, so it should only begin when the process and software are ready.
HMRC’s guidance on payrolling benefits and expenses explains the current registration and reporting process. Review it alongside the newer implementation updates, because the rules will continue to develop before April 2027.
A simple 2027–28 preparation checklist
- Identify all company cars, fuel, vans and medical benefits.
- Confirm the owner and source of each benefits-data field.
- Ask your payroll provider for its implementation timetable.
- Test calculations and corrections before the first mandatory pay run.
- Prepare employee communications and payslip explanations.
- Decide whether to register other benefits for voluntary payrolling.
- Keep monitoring HMRC guidance before finalising the process.
London Accountants can help employers review their benefits data, payroll controls and reporting timetable before mandatory payrolling begins. Early preparation will make the transition more manageable and reduce the risk of avoidable corrections.
