For many years, employers have reported most taxable Benefits in Kind to HMRC after the end of the tax year using forms such as the P11D.
That is changing.
HMRC is introducing mandatory payrolling of most Benefits in Kind and taxable expenses, meaning employers will report and tax them through payroll instead.
The changes are being introduced in phases, so now is a good time to understand what they mean for your business.
What is payrolling benefits?
Payrolling benefits means that the tax due on an employee's Benefits in Kind is collected through PAYE during the tax year, rather than being adjusted afterwards.
This gives employees a more accurate tax position throughout the year and removes much of the need for end of year adjustments.
When do the changes start?
HMRC has confirmed that mandatory payrolling is being introduced in two phases.
From 6 April 2027, mandatory payrolling is due to begin for:
- Company cars.
- Car fuel.
- Vans.
- Van fuel.
- Employer-provided medical benefits.
From 6 April 2028, mandatory payrolling is due to extend to most other taxable Benefits in Kind and expenses.
Employment-related loans and living accommodation are not yet within the main mandation timetable and remain subject to separate guidance.
What does this mean for employers?
Many employers will need to review their payroll processes before the changes take effect.
You may need to:
- Ensure your payroll software supports mandatory payrolling.
- Review how Benefits in Kind are recorded.
- Update internal processes.
- Explain the changes to employees.
- Work with your payroll provider to ensure reporting is correct.
Although there is still time to prepare, these changes are significant and should not be left until the last minute.
Will P11Ds disappear?
For most benefits that are fully payrolled, employers will no longer submit a P11D for those items.
However, employers will still have responsibilities for reporting and paying Class 1A National Insurance where required, and some benefits may continue to have separate reporting requirements.
Where can I find the official guidance?
The most useful official guidance is here:
- Changes to reporting of benefits in kind from April 2027
- Mandatory reporting of benefits in kind in RTI from April 2027
- Mandatory payrolling of benefits in kind and expenses - interim guidance and legislation
- Reporting and paying expenses and benefits
- Payrolling tax employees' benefits and expenses through your payroll
Need help preparing?
Mandatory payrolling will affect most employers over the next two tax years.
If you are unsure how the changes will affect your business or your current payroll process, get in touch with us.