Employers have been given additional time to prepare for one of the biggest changes to payroll reporting in recent years.
Following feedback from employers and payroll professionals, the government has confirmed that mandatory payrolling of Benefits in Kind (BiKs) will now be introduced over two years rather than all at once.
The phased approach is intended to make the transition smoother while giving businesses more time to update payroll systems and processes.
What Is Mandatory Payrolling?
Currently, most employee benefits are reported to HM Revenue & Customs (HMRC) each year using P11D forms.
Under the new system, taxable benefits will instead be reported through payroll in real time.
This means:
- Income Tax on most Benefits in Kind will be collected through employees’ monthly payroll.
- Employers will account for Class 1A National Insurance Contributions through payroll rather than via the annual P11D process.
- Most P11D reporting will eventually disappear.
The aim is to simplify reporting and improve the accuracy of tax collection.
Phase 1 – Starting April 2027
The first phase will begin on 6 April 2027.
Mandatory payrolling will apply to:
- Company cars
- Car fuel
- Vans
- Van fuel
- Employer-provided medical benefits
These are among the most commonly reported employee benefits and represent the first stage of the government’s rollout.
Phase 2 – Starting April 2028
The second phase will begin on 6 April 2028.
This will extend mandatory payrolling to most remaining Benefits in Kind.
However, two types of benefit will remain outside the mandatory system:
- Beneficial loans
- Living accommodation
These will continue under voluntary arrangements for the time being.
Why the Delay?
Mandatory payrolling was originally expected to begin for all relevant benefits in April 2027.
Following consultation and industry feedback, concerns were raised about the time needed for employers, payroll providers and software developers to prepare.
By introducing the changes in stages, businesses will have more opportunity to:
- Update payroll software.
- Review employee benefit arrangements.
- Train payroll teams.
- Test new reporting processes before full implementation.
What Employers Should Do Now
Although the first phase is still some time away, early preparation will make the transition much easier.
Employers should consider:
Reviewing Employee Benefits
Identify which Benefits in Kind your business currently provides and determine which will fall into each implementation phase.
Checking Payroll Software
Speak to your payroll software provider to ensure your system will support mandatory payrolling requirements.
Reviewing Internal Processes
Payroll and HR teams should understand how benefits are currently reported and what changes will be required.
Planning Ahead
Introducing changes gradually now can help avoid disruption closer to the implementation dates.
Further Guidance Is Coming
The government has confirmed that additional guidance is expected by July 2026.
This should provide more detail on:
- Reporting requirements
- Payroll procedures
- Software expectations
- Employer responsibilities
Businesses should keep an eye on future announcements as more information becomes available.
Final Thoughts
The decision to phase in mandatory payrolling is welcome news for employers, giving businesses additional time to prepare for significant payroll changes.
Although implementation is still some time away, reviewing your payroll systems and employee benefits now will help ensure a smooth transition and minimise disruption when the new rules come into force.
If you’d like advice on preparing your payroll, reviewing Benefits in Kind or understanding how the changes affect your business, we’d be happy to help.
📞 01527 368220
📧 info@ojwassociates.co.uk
