The announcement of mandatory payrolling for Benefits In Kind was originally expected to start in April 2027, but following industry pressure, it will now be introduced in two phases.
- Phase 1 will be rolled out from 6 April 2027 and applies to company cars, car fuel, vans, van fuel and employer-provided medical benefits.
- Phase 2 will be rolled out a year later on 6 April 2028 and will include most other Benefits In Kind except beneficial loans and living accommodation.
The move to mandatory payrolling will replace the current P11D process for most benefits and move it to real-time processing through a company’s payroll system.
Employers providing employee benefits must provide taxable values through payroll in real-time and apply Income Tax and Class 1A NICs through payroll rather than submitting yearly P11D forms.
Further guidance is expected by July 2026.
Your questions answered
When will mandatory payrolling of Benefits in Kind be introduced, and what is the phased timeline?
Mandatory payrolling of Benefits in Kind will be introduced in two phases: Phase 1 on 6 April 2027 and Phase 2 on 6 April 2028. This phased approach was introduced following industry pressure to allow employers more time to prepare.
Which employee benefits are included of Phase 1 and Phase 2
Phase 1 includes Company cars, car fuel, vans, van fuel and employer-provided benefits.
Phase 2 inclues most other Benefits in Kind.
How will mandatory payrolling change the current process for reporting and taxing Benefits in Kind?
Mandatory payrolling will significantly change the current system by moving the taxation and reporting of most Benefits in Kind into real-time payroll processing. The existing P11D process will largely be replaced, meaning employers will no longer submit annual forms for most benefits. Instead, the taxable value of benefits will be included directly in employees’ pay throughout the year, allowing Income Tax to be deducted at source. In addition, Class 1A National Insurance contributions will be applied through payroll rather than being calculated and reported at year-end. Overall, this change will spread the tax impact across the tax year, rather than relying on post-year-end adjustments.
