Mandatory payrolling of employee benefits delayed until April 2027

The proposed mandatory regime for payrolling of taxable benefits has been deferred by HMRC until April 2027, as they recognise more time is needed to prepare for this change.

To support the changes ahead, HMRC have provided some details of the future policy and legislative regime for payrolling of benefits that businesses can expect. For prior known details and timeline for payrolling of benefits, please refer to our earlier article here for reference.

The latest detail includes:

• Employers will be able to register for voluntary payrolling of benefits up to 5th April 2026, for the 2026/2027 tax year
• Employers will not need to register with HMRC for mandatory payrolling of benefits from 2027
• HMRC will adjust all employee tax codes, for April 2027, removing all benefits from tax codes, so employees are taxed correctly when the benefits are payrolled
• Employers will however need to register with HMRC for the voluntary payrolling of employment related loans and accommodation for 2027 onwards by 5th April 2027 (if not wishing to submit forms P11D and P11D(b) for these benefits) – the online registration is expected to be available from November 2026
• An end of tax year adjustment process will be implemented, with employers having to report benefit amendments by 6th July following the end of the tax year. Where this results an adjustment to an individual’s tax, this will be accounted for through self-assessment or the end of year tax reconciliation process by HMRC. Any additional Class 1A NIC due will be payable by the 22 July
• Penalties will not be levied by HMRC for errors in payrolling or benefits during the first year of implementation, 2027/2028. Existing penalties and interest will continue to apply to RTI, P11D and P11D(b) returns as normal (where required for employment related loans and accommodation)
• HMRC are also considering retaining the form P11D and P11D(b) process for global mobility payrolls/employees
• Estimated benefit in kind values across the relevant number of pay periods should be used for payrolling where the benefit value is not known at the start of the tax year
• Where a benefit in kind value has been omitted from prior periods in the tax year, the benefit should then be reported as soon as possible, across the remainder of the year
• Where employees or directors are on low (e.g. statutory) or no pay (e.g. absence or leavers with benefits), or the employer is unable to withhold the actual amount of income tax due in consequence of the overriding 50% limit* employers will need to carry forward the relevant amounts throughout the tax year. And again, any uncollected income tax via payroll will be accounted for via self-assessment or the end of year tax reconciliation process

We can expect more guidance and updates from HMRC in Autumn 2025, when they plan to publish draft legislation for consultation.

*Employers are not able to deduct more than 50%, in tax, from an employee's pay in any one pay period.

What does this mean?

Employers can continue to report taxable benefits on forms P11D up to and including the 2026/2027 tax year.

The delay to the mandatory regime will be welcome, as this will provide the time required for stakeholders to assess current state to inform the roadmap of changes required to embed the new legislative framework.

Employers also have more certainty on initial policy design following the latest HMRC announcement and have additional opportunities to provide input through feedback direct to HMRC, through their tax advisors and the consultation expected later this year.

How can we help?

At James Cowper Kreston, our employment tax specialists can guide you through the detail of the current voluntary payrolling of benefits regime, and what we can expect from the new legislation, using their deep technical and practical experience across payroll, global mobility and the form P11D reporting regime to help you prepare.

Contact our Employment Tax team, or your usual contact at James Cowper Kreston today to discuss these changes or your P11D obligations so we can help you maximise your business potential.