HMRC has announced an update to its approach for the roll out of mandatory payrolling for benefits in kind (BIKs).
The move to real-time reporting will now be introduced in phases, rather than the previous plan to mandate nearly all benefits from April 2027.
HMRC has indicated that the change comes following feedback from stakeholders and is intended to support a smoother transition for businesses. However, it may result in some employers having multiple reporting obligations for benefits during the transitional period.
Phase 1 – from 6 April 2027
From April 2027, mandatory payrolling will now only apply to a limited number of BIKs, specifically:
- Company cars
- Car fuel
- Vans
- Van fuel
- Employer-provided medical benefits
For these benefits, employers will be required to report income tax and class 1A national insurance contributions (NICs) through the payroll using Real Time Information (RTI).
Phase 2 – from 6 April 2028
The second phase, from April 2028, will extend mandatory payrolling to most other BIKs, with the exception of employment-related loans and living accommodation. These benefits are expected to remain subject to reporting via Forms P11D and P11D(b) for the foreseeable future, although an employer can choose to voluntarily payroll those benefits if they wish.
What this means for employers
As a result of the phased approach, employers may have two separate reporting processes during the transitional period, with some benefits taxed via the payroll and others continuing to be reported via the P11D and P11D(b) process.
To reduce the administration burden, employers can choose to voluntarily payroll other benefits not yet within the mandated scope. This could help to streamline reporting processes by allowing all benefits to be taxed via the payroll, rather than maintaining a hybrid approach.
Voluntary payrolling of all benefits may, however, not always be practical. For example, employment-related loans and living accommodation can be complex to calculate on a real-time basis, which may lead to increased administrative burdens and a higher risk of errors. Employers may, therefore, prefer to operate a hybrid reporting approach in such circumstances.
Note that PAYE Settlement Agreements (PSAs) are not impacted by these changes and will remain subject to separate reporting.
Preparing for the change
There are a number of steps employers should take in advance of April 2027 to prepare for the change including:
- Identifying all benefits provided to employees.
- Determining which benefits fall into each phase of the new regime.
- Considering whether to voluntarily payroll benefits not mandated in Phase 1, particularly where a hybrid reporting approach would otherwise apply.
- Registering with HMRC by 5 April 2026 to voluntarily payroll benefits for the 2027/28 tax year that are not included in Phase 1.
