HMRC has confirmed a significant update to its plans for mandatory payrolling of Benefits in Kind (BiKs) and expenses, providing employers with additional time to prepare for the move to real time reporting.
Following consultation with employers, payroll professionals and software developers, the Government has announced a phased implementation approach. Rather than applying mandatory payrolling to all benefits from April 2027, only a limited number of benefits will fall within the initial phase, with further changes expected in subsequent years.
While the revised timetable offers greater flexibility, employers should still use the time available to review their payroll processes, benefits administration and reporting arrangements ahead of the transition.
HMRC Adopts a Phased Approach
The move to mandatory payrolling remains a key part of HMRC's wider objective to modernise benefit reporting and improve the accuracy of tax collection.
However, following industry feedback, implementation will now be introduced in stages.
From 6 April 2027, mandatory payrolling will apply only to:
Under the payrolling regime, the taxable value of benefits will be reported through the Full Payment Submission (FPS), allowing tax and National Insurance liabilities to be processed in real time rather than through year end reporting.
What Can Still Be Reported Through P11D?
One of the most important aspects of the revised announcement is that most other Benefits in Kind and taxable expenses can continue to be reported using existing processes during the 2027/28 tax year.
This means employers may continue to:
HMRC's current intention is that most remaining benefits will move into mandatory payrolling from April 2028. Employment related loans and living accommodation benefits are expected to transition later.
Understanding the New Registration Requirements
The registration process is also changing as part of the new framework. For benefits falling within the mandatory regime, employers will not be required to register with HMRC before payrolling begins.
However, registration will still be required for employers who choose to voluntarily payroll:
HMRC has indicated that the registration service for the 2027/28 tax year is expected to open in November 2026, with a registration deadline of 5 April 2027. Employers considering voluntary payrolling should review their plans early to ensure they are able to meet the registration requirements.
What Happens to Employee Tax Codes?
To support the transition, HMRC will automatically remove mandatory payrolled benefits from employees' tax codes before 6 April 2027. This should help reduce the risk of duplicate taxation and simplify the transition to real time reporting.
However, employers should be aware that the existing process for collecting tax underpayments will remain unchanged. Outstanding liabilities from previous tax years may still be collected through employees' tax codes, including underpayments relating to Benefits in Kind and expenses.
Employees who wish to settle underpayments directly may be able to do so through their Personal Tax Account or by making payment directly to HMRC where a P800 calculation has been issued.
Is Your Payroll Function Ready?
Although the initial scope of mandatory payrolling is now more limited than originally anticipated, employers should not view the delay as a reason to postpone preparations.
Questions employers should be asking include:
Businesses with complex benefits programmes, multiple payrolls or internationally mobile employees may require additional planning to ensure compliance.
UK – Global Insights
For further insights into UK payroll legislation, Benefits in Kind reporting, employment taxes and compliance updates, explore our UK Global Insights page on the activpayroll website.
Expert Support for a Changing Payroll Landscape
activpayroll supports organisations operating in the UK and internationally with payroll compliance, reward administration and legislative change management, helping businesses prepare for evolving reporting requirements with confidence.
If your organisation would like support preparing for mandatory payrolling of Benefits in Kind, speak to our experts today.