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

From 6 April 2027, employers will have to start reporting and taxing certain benefits in kind through payroll in real time, rather than waiting until the end of the tax year to report them on a P11D. HMRC has confirmed the approach will be phased, and employers who want a head start can register to payroll some benefits voluntarily from November 2026. If you provide company cars, vans or medical benefits to staff, this is a change worth planning for now rather than next spring.

What's actually changing

Currently, most employers report benefits in kind after the tax year ends, using a P11D (or P11D(b) for the employer's Class 1A National Insurance). Tax on those benefits is usually collected later, often through an adjustment to the employee's tax code the following year.

Mandatory payrolling flips that around. Instead of reporting benefits after the fact, employers add the taxable value of certain benefits to an employee's pay each pay period, deduct Income Tax through PAYE in real time, and pay Class 1A National Insurance alongside their normal payroll liabilities. The employee sees the tax taken as they go, rather than facing a bill or a tax code change months later.

The phased timetable

HMRC has split the rollout into two phases:

• Phase 1, from 6 April 2027: mandatory payrolling applies to company cars, car fuel, vans and van fuel, and employer-provided medical benefits (such as private medical insurance).

• Phase 2, from 6 April 2028: mandatory payrolling extends to most other benefits in kind.

Two notable exceptions sit outside the mandate altogether, at least for now: beneficial loans and living accommodation remain voluntary in both phases, reflecting how much harder they can be to value in real time. HMRC has indicated it's weighing up voluntary Class 1A reporting more broadly for benefits that aren't yet mandated.

Why November 2026 matters

Employers who want to get ahead of the curve will be able to register voluntarily to payroll non-mandated benefits, including loans and accommodation, for the 2027/28 tax year from November 2026. This is optional, but for businesses already comfortable with payrolling benefits such as private medical cover, it may be worth bringing other benefits into the same process early rather than running two systems side by side.

Alongside this, HMRC has been updating its technical and data guidance for payroll software developers, including a significant simplification that removes dozens of RTI data fields relating to benefits in kind. Final guidance for Phase 1 is expected to land around the Autumn Budget.

What this means in practice for employers

For a typical Bury or Greater Manchester SME providing a handful of company vehicles or a group medical scheme, the practical steps are:

• Check your payroll software. Confirm with your provider that it supports real-time payrolling of benefits and will be updated in time for April 2027.

• Get your benefit data in order. You'll need accurate, up-to-date values for cars, fuel and medical benefits well before the 2027/28 tax year starts, since the taxable value needs to be annualised and spread across pay periods.

• Decide on early registration. If you already provide loans, accommodation or other non-mandated benefits, think about whether voluntary registration from November 2026 makes sense for your business.

• Talk to affected staff. Employees will see a different net pay figure once their benefit is payrolled, so it's worth explaining the change before it happens rather than after the first payslip looks different.

• Review your P11D process now. Even though full retirement of the P11D is still some way off for non-mandated benefits, it's sensible to start separating out which benefits will move to real-time reporting and which won't.

Getting ready in good time

This is one of those changes that rewards early preparation, particularly if your business runs a company car or medical benefits scheme and hasn't payrolled benefits before. There's genuine value in using the next few months to check software readiness and benefit data quality, rather than scrambling in March 2027.

As with most payroll changes, the detail can shift as HMRC finalises its guidance, so it's worth keeping an eye on updates between now and the Autumn Budget. Jackson Lee Accountants, based in Bury, works with local employers on payroll setup and compliance, and is happy to help you work out what this change means for your particular mix of benefits well before the April 2027 start date.