HMRC confirms phased approach to mandatory payrolling of Benefits in Kind

Last week, HMRC announced a significant update to its plans for the mandatory payrolling of Benefits in Kind, introducing a phased implementation from April 2027.

Under previous proposals, employers were expected to payroll almost all Benefits in Kind from April 2027 (with limited exceptions such as accommodation and beneficial loans). However, following delays in publishing detailed technical guidance, HMRC has now confirmed a more gradual rollout.

From 6 April 2027, mandatory payrolling will apply only to:

• Company cars and car fuel
• Vans and van fuel
• Private medical benefits (including dental)

All other benefits in kind will continue to be reported via P11D or voluntary payrolling until later phases are introduced.

HMRC has indicated that the remaining benefits are expected to be brought into mandatory payrolling from April 2028, with further details and timelines to be confirmed in due course.

This change reflects the practical challenges employers, payroll providers, and software developers face in moving to real-time reporting, and is intended to allow more time for systems and processes to be updated.

What this means for employers

While the immediate scope of the changes has been reduced, this remains a fundamental shift in how benefits are reported and taxed. Employers should continue preparing for real-time reporting through payroll, with an initial focus on the benefits included in the first phase.

Key actions include:

• Reviewing current benefit offerings and identifying those in scope for April 2027
• Assessing whether payroll systems can support real-time reporting requirements
• Engaging with payroll providers and software developers to plan implementation
• Communicating upcoming changes to employees and stakeholders

Further technical guidance from HMRC is expected over the coming months.

How we can help

Our employment tax and payroll specialists can support you in understanding the impact of these changes and preparing for the transition. If you would like to discuss how these developments affect your organisation, please get in touch with your usual contact at James Cowper Kreston or a member of our employment tax team here.