The changes will move the reporting of most employee benefits away from annual P11D forms and into real-time payroll reporting. Our Payroll Services Manager, Angela Kitson explains what business owners and employers can do to prepare.
What is changing with mandatory payrolling of Benefits in Kind?
Currently, many taxable employee benefits are reported to HMRC after the end of the tax year using a P11D form.
Under mandatory payrolling, employers will instead report the taxable value of applicable Benefits in Kind through their payroll each pay period using Real Time Information (RTI).
This means that the Income Tax due on these benefits will be dealt with through payroll as employees are paid, rather than being dealt with retrospectively through the P11D process.
The changes will also bring Class 1A National Insurance Contributions (NICs) into real-time payroll reporting.
Benefits in Kind payroll phasing deadlines
Mandatory payrolling had been expected to apply more widely from April 2027. Following industry feedback, however, HMRC has confirmed that the requirements will now be introduced in two phases.
Phase 1 will take effect from 6th April 2027 and apply to:
Company cars and car fuel
- Vans and van fuel
- Employer-provided medical benefits
Employers providing any of these benefits should therefore ensure they are ready to report the relevant taxable values through payroll from the beginning of the 2027/28 tax year.
Phase 2 will begin on 6th April 2028, when most other Benefits in Kind will be brought within mandatory payrolling.
There will continue to be exceptions. Beneficial loans and employer-provided living accommodation will remain voluntary rather than becoming part of the mandatory regime.
The phased approach gives employers an additional year to prepare for the mandatory payrolling of benefits that are not included within Phase 1.
How will mandatory payrolling affect P11D reporting?
For benefits brought within mandatory payrolling, employers will move away from reporting them retrospectively on annual P11D forms.
Instead, relevant benefit information will need to be included within payroll throughout the tax year.
While this should reduce the need for year-end forms, it also makes it increasingly important for employers to have accurate and up-to-date information about the benefits they provide.
Errors may be identified sooner and could require corrections through payroll, so employers will need robust processes for calculating, updating and reporting benefit values throughout the year..
Preparing your payroll for mandatory Benefits in Kind reporting
Although Phase 1 does not begin until April 2027, employers should use the time available to prepare.
As a starting point, businesses should review the Benefits in Kind they currently provide and identify which employees and benefits will fall within Phase 1.
Employers should also consider whether their existing payroll software and internal processes will be ready to support real-time reporting of Benefits in Kind.
Preparing in advance should reduce the potential for disruption and give businesses time to address any issues before mandatory payrolling begins.
Further guidance on mandatory payrolling
HMRC has been working with payroll software providers and industry representatives on the implementation of the new system, with further technical guidance being provided during 2026. We will continue to keep LWA clients updated as further details become available and businesses move closer to the first phase of mandatory payrolling in April 2027.
In the meantime, if you would like support reviewing the Benefits in Kind you currently provide or preparing your payroll processes and systems for the new requirements, please get in touch with Angela Kitston or a member of LWA's Payroll Services team on 0161 905 1801 in our South Manchester office, or 01925 830 830 for our Warrington team.