Mandatory payrolling of benefits in Kind (BiKs)comes into effect on 6 April 2027. But on 15 June 2026, HMRC confirmed that the shape of that deadline will change considerably -: rather than mandating payrolling for all benefits at once, the rollout will happen in two phases.
What the phased approach means
Phase 1
From 6 April 2027, mandates payrolling for
company cars,
- car fuel
- Vans
- van fuel
- employer-provided medical benefits.
These are benefits with known, stable values – HMRC’s rationale being that they are easier to calculate in real time. For these benefits, April 2027 remains a hard deadline.
Phase 2
6 April 2028, brings in most other Benefits in Kind. Employment-related loans and living accommodation remain outside mandatory payrolling for the time being, with a separate timetable to be confirmed. Employers will be able to register for voluntary payrolling of all other benefits, including loans and accommodation, from November 2026.
HMRC has said its updated interim guidance will be published in July 2026, with final guidance for phase 1 expected at the Autumn Budget 2026. The six steps below reflect the current position.
Is your payroll software ready?
Not all payroll software is equally prepared for mandatory payrolling, and HMRC will not publish final technical specifications for developers until late 2026. That leaves a short window between the specs being finalised and April 2027 for software providers to build, test, and release updated functionality.
Ask your provider directly, and in writing, for their development timeline for mandatory payrolling of Benefits in Kind. When will updated functionality be available, and how will they support clients through the transition?
A well-prepared provider will be able to answer these questions specifically. One that responds with vague reassurances – “we’ll be ready,” “we’re monitoring developments” – is a provider to be concerned about.
HMRC has confirmed that its own Basic PAYE Tools will be updated in time for April 2027. For businesses with straightforward benefits packages and small employee numbers, that may be sufficient. For businesses with complex benefit
structures or a larger workforce, a more robust system is almost certainly necessary.
If your current provider cannot give you confidence, now is the right time to find that out, not in February 2027.
The six things to do now
1. Audit every Benefit in Kind you provide
Before you can payroll benefits, you need a complete picture of what you are providing. Go through your employee population systematically. Every benefit that currently goes on a P11D needs to be identified, valued, and linked to the right employee before it can be payrolled.
With phasing now confirmed, it also matters which category each benefit falls into. Knowing your full benefit inventory now means you can plan both phases properly, rather than scrambling twice.
2. Rethink how you collect benefit data
The P11D process works retrospectively – you gather benefit information after the year ends and report it in July. Payrolling works the other way around. You need the value of each benefit at the start of the tax year, in time for the April payroll. Think about how benefit values currently reach your payroll team, who provides them, and what happens when a benefit changes mid-year. The process that works for an annual P11D will often need significant adjustment to work in real time.
3. Model the Class 1A cash flow impact
In the transition year, many employers will face a double Class 1A National Insurance payment – the 2026/27 annual payment is still due in July 2027, overlapping with real-time Class 1A payments beginning in April 2027 for phase 1 benefits.
The phased approach also means that for 2027/28, employers will be running two parallel processes – payrolling phase 1 benefits in real time, while continuing to report phase 2 benefits on P11D until April 2028. That is a more complex transition year than originally anticipated.
Quantify your expected Class 1A liabilities across both categories now, model the overlap, and build the impact into your financial forecasts. This is a known, plannable event. The time to account for it is 2026, not July 2027.
4. Write your employee communication now
Changes to payslips and net pay that are not explained in advance generate anxiety and queries. You do not need to send the communication yet, but drafting it now forces you to think through exactly what employees need to understand.
What they will see on their payslip, why their net pay may change, and what it means for their tax position. Having it ready is one less thing to do in the busy run-up to April 2027.
5. Don’t be lulled by HMRC’s soft-touch approach
HMRC has confirmed it will take a lenient approach to reporting inaccuracies in the first year of mandatory payrolling – penalties will not be levied for genuine errors in 2027/28, provided they are not deliberate. That is welcome. But late filing penalties still apply from day one, interest accrues on late payments from day one, and HMRC’s tolerance for errors will not extend beyond year one. The soft touch is a cushion for teething problems, not a reason to defer preparation.
April 2027 is achievable with the right groundwork, and with phasing confirmed, the scope for that first deadline is clearer than it was. But a narrower phase 1 does not mean a smaller project. It means two waves of implementation to prepare for, not one. The employers who will find both manageable are the ones who treat the whole thing as a 2026 project, not a 2027 one.
If you would like to talk through what mandatory payrolling means for your business, or you need support getting ready, the Ascend team is here.
