HMRC has confirmed that the move to mandatory payrolling of benefits in kind (BiKs) will be introduced on a phased basis, following feedback from businesses, advisors and software developers. This represents a significant shift in the way employers report and process taxable benefits, with real-time reporting of Income Tax and Class 1A National Insurance contributions set to replace the traditional P11D process.
What is changing?
Mandatory real-time reporting for certain BiKs and taxable expenses will now be implemented in two phases:
- Phase 1: from 6 April 2027
- Phase 2: from 6 April 2028
The revised timeline reflects HMRC’s recognition of the operational and systems challenges involved and aims to provide employers with additional time to prepare.
Phase 1: From April 2027
From 6 April 2027, mandatory payrolling will apply to the following benefits:
- Company cars
- Car fuel
- Vans
- Van fuel
- Employer-provided medical benefits
Employers will be required to report Income Tax and Class 1A NIC through payroll in real time.
Phase 2: From April 2028
From April 2028, mandatory payrolling will extend to most other BiKs. However, loans and living accommodation will remain outside the mandatory payrolling arrangements. Instead, it will be possible for either benefit to be payrolled on a voluntary basis. Further information is expected over the coming months.
What does this mean for employers?
This reform will fundamentally change how benefits are taxed and reported. Employers will need to ensure payroll systems can manage real-time reporting, improve internal processes, and prepare employees for changes to how benefits are taxed.
Next steps
Employers will need to review their current benefit packages and work with the payroll provider ahead of April 2027 and 2028. Early preparation will be key to a smooth transition.
Please contact the HaysMac Employment Tax team to discuss matters further.
