Mandatory Payrolling of Benefits in Kind to Be Introduced in Two Phases

The government has confirmed that the introduction of mandatory payrolling for Benefits in Kind (BiKs) will now be phased in over two years, giving employers more time to prepare for the changes.

Originally expected to take effect in full from April 2027, the new timetable follows feedback from employers, payroll professionals and software providers about the scale of the changes required.

What Is Changing?

Mandatory payrolling will replace the current P11D reporting process for most employee benefits.

Instead of reporting taxable benefits to HMRC after the end of the tax year, employers will need to process them through their payroll in real time. This means Income Tax and Class 1A National Insurance contributions will be calculated and collected throughout the year.

The aim is to simplify the reporting process while ensuring employees pay the correct tax on their benefits as they receive them.

The New Timetable

The changes will be introduced in two stages.

Phase 1 – From 6 April 2027

The following benefits will become subject to mandatory payrolling:

• Company cars

• Company car fuel

• Company vans

• Van fuel

• Employer-provided medical benefits
  

Phase 2 – From 6 April 2028

Most remaining taxable Benefits in Kind will move to mandatory payrolling.

However, beneficial loans and living accommodation will remain outside the mandatory regime and can continue to be reported using the existing voluntary arrangements.

What Should Employers Do?

Although the new rules are still some time away, employers should begin preparing now by reviewing how employee benefits are currently administered.

Key areas to consider include:

• Whether your payroll software will support mandatory payrolling.

• How benefits are valued and reported.

• Whether payroll and HR processes need updating.

• Ensuring payroll teams are trained ahead of the new requirements.
  

HMRC is expected to publish further detailed guidance during 2026 to help employers prepare for the transition.

How We Can Help

Mandatory payrolling represents one of the biggest changes to employee benefits reporting in recent years. Taking steps now can help ensure your payroll processes are ready and minimise disruption when the new rules take effect.

At SJC Chartered Accountants, we can help you understand the new requirements, review your payroll systems and ensure your business remains fully compliant with HMRC's latest guidance.

If you'd like advice on preparing for mandatory payrolling or managing employee benefits, contact our payroll team today.