Phased Introduction of benefits in kind payrolling

HMRC has confirmed that the mandatory payrolling of Benefits in Kind (BiKs) will now be introduced in phases, rather than applying to all taxable benefits from a single start date. While this gives employers additional time to prepare, businesses will need to manage both payroll reporting and traditional P11D reporting during the transition.

What are benefits in kind?

Benefits in kind are non cash benefits provided to employees or directors.  Common examples include things like company cars, private medical insurance, fuel, interest free or low interest loans and living accommodation.

Most employers report these benefits after the end of the tax year using forms P11D which are usually submitted to HMRC by 6 July following the end of the tax year.

Employers are also responsible for paying any associated national insurance.

Under the new system, taxable benefits will be processed through payroll in real time, allowing income tax to be collected during the tax year rather than through later adjustments to employees' tax codes.

The phased rollout

Mandatory payrolling was originally expected to begin in April 2026, before being postponed to April 2027.  HMRC has now confirmed that implementation will be phased, giving employers, payroll providers and software developers more time to prepare.

The first stage will include fewer benefits than originally planned and require fewer Real Time Information (RTI) data fields, helping to reduce the initial administrative burden.

From 6 April 2027, mandatory payrolling is expected to apply to:

• Company cars
• Car fuel
• Vans
• Van fuel
• Employer provided medical benefits, including private medical insurance.

From April 2028, most remaining benefits in kind are expected to move into mandatory payrolling. However, interest free or low interest loans and employer provided accommodation are not expected to be included at this stage and will remain voluntary.

Preparing your business

During the transition employers may need to operate a mixed reporting system with some benefits processed through payroll while others continue to be reported on P11D forms.

Although the delay provides additional breathing space, businesses should begin preparing now by:

• reviewing the benefits currently provided
• identifying which benefits fall into phase one
• checking payroll software is ready
• reviewing benefit data collection processes
• training payroll, HR and finance teams
• communicating the changes clearly to employees.

Employees may notice changes to their payslips and tax codes as benefits begin to be taxed through payroll, making clear communication particularly important.

Looking ahead

For now employers will still need to submit P11D forms for benefits that are not included in the first phase unless they are already being voluntarily payrolled.

The move to mandatory payrolling has not been cancelled, it has simply been changed to apply in small tranches.   Reviewing your current reporting processes now will help ensure your business is ready well before the start of the 2027/28 tax year.