HMRC Confirms Phased Approach to Mandatory Payrolling of Benefits in Kind

HMRC has confirmed a significant shift in the reporting of benefits in kind. The transition to mandatory payrolling will now occur in two distinct phases, starting from 6 April 2027. This change is designed to move the reporting of most taxable benefits away from the traditional annual P11D process and into the real time information system, ensuring that Income Tax and Class 1A National Insurance contributions are managed during each pay period.

From April 2027, the first phase will encompass company cars, car fuel, vans, van fuel, and employer provided medical benefits. This change represents a major modernisation of the tax system. By reporting these benefits through the payroll, employers can ensure that tax is accounted for accurately as the benefits are provided, rather than waiting until the end of the tax year.

From April 2028, most remaining benefits will be brought into the regime. However, it is important to note that certain items, such as beneficial loans and employer provided living accommodation, will remain voluntary under the new system. This phased approach provides businesses with a clearer timeline to adjust their internal procedures.

For many employers, this transition will reduce the administrative burden of completing annual P11D forms. However, it also increases the importance of maintaining precise payroll records throughout the year. Errors will be identified more quickly, and corrections may need to be addressed in real time. Our managed payroll service at sterlingpayrollsolutions.co.uk/services ensures you stay ahead of every HMRC deadline and can help you navigate these reporting adjustments with confidence.

As HMRC continues to work with software providers to finalise technical guidance, now is the ideal time to review your current benefit packages. Identifying which benefits will fall into the first phase will allow you to prepare your systems and team well in advance of the deadline. This proactive approach will help you avoid last minute compliance issues and streamline your reporting processes.

If you would like to discuss how these changes affect your specific business structure, you can book a free consultation with our Exeter payroll bureau at sterlingpayrollsolutions.co.uk/book. We are here to help you manage the transition and ensure your payroll remains accurate and fully compliant as these new regulations take effect.