Payrolling Benefits in Kind Becomes Mandatory from April 2027: What Employers Should Do Now

HMRC Confirms Phased Rollout of Mandatory Payrolling

From April 2027, payrolling certain benefits in kind will stop being optional for most employers. HMRC's August 2026 Employer Bulletin confirms a phased introduction, with company cars, car and van fuel, and private medical insurance included in the first wave.

What Changes in Phase 1 (April 2027)

• Employers must report and tax company cars, vans, fuel benefit, and medical benefits in real time through payroll rather than on a P11D after the year end

• Class 1A National Insurance on these benefits will be calculated and reported through payroll software as part of the normal pay run

• HMRC has said further benefit types will not be included in this first phase, easing the transition for employers who are new to payrolling

What Follows in Phase 2 (April 2028)

• The remaining benefits currently reported on forms P11D and P11D(b) are expected to move into mandatory payrolling from April 2028

• Employers already voluntarily payrolling benefits (having registered before 6 April 2025) are ahead of the curve and should find the transition straightforward

Why This Matters Now, Not in 2027

• Payroll software, employee communications, and internal processes for valuing benefits all need to be in place before the first live payroll run in April 2027

• Employers still submitting P11D and P11D(b) forms for 2025/26 (the July 2026 deadline for these has already passed) should treat this bulletin as the trigger to start scoping the move to real-time reporting

• HMRC is running user research with payroll professionals to help shape the guidance - a sign the detailed rules are still being finalised, so it's worth watching for updates

FAQ

Do all benefits in kind move to payrolling in April 2027?

No. Phase 1 covers company cars, vans, car and van fuel, and medical benefits only. Other benefits in kind, such as loans and living accommodation, are expected to follow from April 2028.

What happens if we're already payrolling benefits voluntarily?

Employers who registered to payroll benefits before 6 April 2025 are already reporting through PAYE and should see comparatively little change when the mandatory phase begins.

Do we still need to file P11D forms?

For benefits brought into mandatory payrolling, no - the reporting moves into your regular payroll submissions and Class 1A National Insurance is calculated through payroll. Benefits not yet in a mandatory phase still need to be reported in the usual way until their own start date arrives.

What should we be doing before April 2027?

Talk to your payroll software provider about payrolling functionality, review which benefits your business currently provides, and get accurate valuations ready so the transition doesn't have to happen in a rush.

If you provide company cars, fuel, or medical benefits to employees and want help planning the move to mandatory payrolling, Jackson Lee Accountants can review your current P11D position and get your payroll ready ahead of April 2027. Get in touch (https://www.jacksonleeaccountants.co.uk/contact-me) to talk it through.

Sources: HMRC Employer Bulletin: August 2026 (https://www.gov.uk/government/publications/employer-bulletin-august-2026/august-2026-issue-of-the-employer-bulletin), HMRC employer bulletins collection (https://www.gov.uk/government/collections/hmrc-employer-bulletins)