Mandatory Payrolling of Benefits in Kind from April 2027 – What employers must do

Starting April 2027, UK employers must payroll most benefits in kind (BIKs), collecting tax and Class 1A National Insurance in real time. This new regime demands changes to payroll processes, systems and communications ahead of the deadline.

What the Delay Means & Which Benefits are Affected

Originally, the mandatory payrolling regime was due to start in April 2026, but HMRC has extended the timeline, deferring it to April 2027, giving employers an additional 12 months to prepare.

From April 2027, all benefits in kind (excluding employment‐related loans and employer-provided accommodation) must be reported via payroll under Real Time Information (RTI). Employers will also pay Class 1A NICs during the tax year on these benefits.

Loans and company-provided accommodation remain voluntary to payroll but will still require P11D and P11D(b) reporting until any future change.

Reporting & Registration Requirements

Expanded RTI Data Fields & Using FPS

Employers must use the Full Payment Submission (FPS) process to include data currently reported on P11D and P11D(b). More data fields will be added to the RTI submissions so the taxable cash equivalent of benefits can be reported each pay period.

When the value of a benefit is unknown at the start of the year, employers must use a reasonable estimate. Adjustments can follow once values become known.

Registration & Voluntary Early Adoption

Voluntary payrolling for most BIKs can start in the 2026/27 tax year, provided registration completes before 5 April 2026. For accommodation and loan-type benefits, voluntary registration opens in November 2026 and must be done before 5 April 2027.

From April 2027, most employers will not need separate registration for mandatory payrolling (except when choosing to payroll accommodation or beneficial loans voluntarily).

Impacts & Preparations for Employers

Cash Flow & Payroll System Impacts

Due to tax and NICs on benefits being processed with each pay period, employers should model and plan for potential cash flow changes. Some employees with previous under-deductions may face adjustments.

Software providers must ensure systems capture new data fields; support estimated values, apply revised NIC treatment, and manage adjustments mid-year.

Employee Relations & Communication

Employers should explain to employees what benefits are being payrolled, how their pay and tax codes will change, and what to expect in the first year. Clear communication avoids surprises and helps employees understand real-time deductions.

Policy & Guidance Timeline

HMRC has already issued some draft guidance outlining the framework for mandatory payrolling from April 2027. Further detail, including legislation and technical specifications, is expected in due course. Employers should stay alert to these developments while continuing preparations to update their payroll systems and communication processes.

Summary & Actions You Should Take Now

• The shift to mandatory payrolling of most BIKs in April 2027 represents one of the biggest changes to UK employment-tax reporting in recent years. To stay compliant, employers should:
• audit current benefits in kind and how they are reported,
• confirm payroll system and vendor readiness,
• consider voluntary early adoption for some benefits,
• prepare employee communications.

Get in touch

Our payroll services team can guide you through these changes, from assessing your current reporting processes to supporting voluntary payrolling ahead of 2027.

We also provide tailored tax advisory support to help you manage the wider implications for your business. To discuss how we can support your organisation, please contact us today.

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