Mandatory Payrolling of Benefits in Kind: why employers should start preparing now

Mandatory Payrolling of Benefits in Kind: why employers should start preparing now

By Nicola Hirshfield, Chartered FCIPD FCIPP, HR Director at HR Connect

The way employers report and tax Benefits in Kind is changing. From April 2027, the first phase of Mandatory Payrolling of Benefits in Kind will move the taxation and reporting of some of the most commonly provided employee benefits into payroll in real time.

For employers, however, this is about much more than making a change to payroll. It will require organisations to think differently about how benefit information is captured, how quickly changes are communicated and how HR, payroll, finance and benefit providers work together. With April 2027 getting closer, now is the time to understand your current arrangements and identify where processes may need to change.

What is changing?

From 6th April 2027, employers will be required to payroll certain Benefits in Kind (BiKs), meaning the taxable value of the benefit will be reported through payroll in real time rather than relying on the traditional year-end P11D process.

The first phase will apply to:

• company cars
• car fuel
• vans
• van fuel
• private medical insurance and other employer-provided medical benefits.

From 6th April 2028, mandatory payrolling is expected to extend to most remaining Benefits in Kind. Employment-related loans and accommodation are not included within mandatory payrolling at this stage.

Employers will not need to register with HMRC to payroll the benefits included in the mandatory arrangements from April 2027. Those choosing to payroll other, non-mandatory benefits voluntarily will need to register. HMRC has said that its registration service is expected to be available from November 2026, with registration required by 5th April 2027 for voluntary payrolling from the start of the 2027/28 tax year.

Why this is more than a payroll change

It would be easy to look at mandatory payrolling as primarily a payroll system or compliance change. In reality, one of the biggest challenges is likely to be data and timing. Under a year-end reporting model, organisations have traditionally had greater opportunity to collate and reconcile benefit information after the event. Real-time reporting changes that dynamic. Payroll teams will increasingly depend on accurate benefit information being available at the right point in each payroll cycle. That creates a much greater need for effective processes between payroll and the teams or third-party providers responsible for benefits. HMRC itself is encouraging employers to prepare early and warns against underestimating the time required to make payroll processes sufficiently robust for real-time Benefits in Kind reporting.

That is why April 2027 shouldn't be viewed simply as a system implementation date. It should be treated as an operational readiness date.

What should employers be thinking about now?

There are some practical questions organisations can start asking:

1. Do we know exactly which benefits we provide?
   Establish a clear picture of the benefits currently provided, who receives them and which will fall within the first phase of mandatory payrolling.
2. Where does our benefits data come from?
   Consider who holds the information payroll will need. It may sit across HR, finance, fleet providers, insurers or other third parties.
3. Will the information reach payroll at the right time?
   A process that works for annual P11D reporting may not necessarily work for real-time payroll reporting. Cut-off dates, responsibilities and data flows should therefore be reviewed.
4. Are our controls strong enough?
   With information moving through payroll more regularly, employers should consider how new benefits, changes and leavers are identified and communicated.
5. How will employees understand the change?
   Employees may see changes to their tax codes, payslips and take-home pay as the new arrangements take effect. HMRC specifically recommends early communication so employees understand how the changes could affect their tax and take-home pay.

Don't forget the employee experience

This is an area employers shouldn't underestimate. For an employee, their first awareness of mandatory payrolling should ideally not be a change they notice on their payslip. Clear communication ahead of implementation can help employees understand why their benefit is appearing through payroll, what has changed and why their tax position may look different. HMRC has also confirmed that it intends to remove relevant Benefits in Kind from employees' tax codes in preparation for mandatory payrolling from 6 April 2027, although previous-year tax underpayments may remain within tax codes. That makes employee communication an important part of implementation planning, rather than something to consider once the payroll changes have been made.

The HR Connect view: preparation starts with the process, not just the system

"The organisations best prepared for mandatory payrolling will be those that bring together payroll expertise, accurate data, clear processes and effective employee communication."

At HR Connect, our experience of managing complex payroll and HR processes tells us that successful change depends on more than having technology ready. Systems are important, but so are the processes around them. Employers should use the time before April 2027 to understand what benefits they are currently offering, establish clear ownership of data, review the journey information takes before reaching payroll and identify any gaps. The organisations best prepared for mandatory payrolling will be those that bring together payroll expertise, accurate data, clear processes and effective employee communication.

Key dates

• November 2026
  HMRC expects its service for registering non-mandatory Benefits in Kind for voluntary payrolling to become available.
• 5 April 2027
  Deadline for employers wishing to register to voluntarily payroll non-mandatory Benefits in Kind during 2027/28.
• 6 April 2027
  Mandatory payrolling begins for company cars and fuel, vans and van fuel, and private medical and other employer-provided medical benefits.
• 6 April 2028
  Mandatory payrolling is expected to extend to most remaining Benefits in Kind, with loans and accommodation remaining outside the mandatory arrangements at this stage.

How HR Connect can help

The move to mandatory payrolling represents a significant change for employers, but early preparation can make that transition considerably smoother. Look out for our recent communication and get in contact with us at info@hrconnect.org.uk or call 0330 124 9996.

HR Connect can support organisations in understanding the payroll implications of the changes and preparing their processes for the move towards real-time Benefits in Kind reporting.

As the detailed requirements continue to develop, we will continue to share updates and practical guidance to help employers understand what the changes mean and, importantly, what they need to do to be ready and how we have our own systems ready to support.