Mandatory payrolling of benefits in kind: what happens in April 2027

What is mandated, and what is not

HMRC's guidance chapter on the default operation of mandatory payrolling states that from 6 April 2027 employers must payroll taxable expenses, Income Tax, Class 1A National Insurance contributions and the following benefits in kind: company cars, car fuel, vans, van fuel and employer-provided medical benefits (gov.uk). Everything else is either voluntary from 2027 and mandated from 2028, or, in the case of loans and accommodation, voluntary indefinitely.

How the reporting mechanics work

1. Work out the cash equivalent or relevant amount of the benefit for the tax year, exactly as you would for a P11D today.
2. Divide it by the number of pay periods for that employee and round down to two decimal places. HMRC's example: a £2,100 annual benefit for a monthly paid employee is £175 added to each month's earnings.
3. Include that figure alongside earnings in each pay period so Income Tax and Class 1A National Insurance are calculated and the amount appears on the payslip.
4. If the value changes mid-year, recalculate the annual figure, deduct what has already been payrolled, and spread the balance over the remaining pay periods.

Where a value is not known at the start of the year you can use a reasonable estimate and adjust later, or use known values from previous years for similar benefits. HMRC says every effort must be made to make a reasonable estimate, and that employees should not be left owing so much tax that they have difficulty paying it. Records must be kept for three years from the end of the tax year they relate to.

What HMRC asks employers to do now

• List every benefit that would ordinarily go on a P11D, and mark which are in phase 1, which are in phase 2, and which are loans or accommodation.
• Confirm the software. HMRC says to review which software or software changes will be needed and who will provide them, with early discussions recommended.
• Fix the information flow. Payroll needs benefit changes routinely and quickly, not once a year, and that usually means changing how HR, finance and third-party benefit providers hand over data.
• Plan for joiners, leavers and changing values, including company car changes, flexible benefit arrangements and salary sacrifice.
• Tell employees. HMRC devotes a whole section to this, because employees currently paying tax in arrears on benefits will move to paying in the year they receive them.

Penalties during the transition

HMRC has said that for 2027 to 2028, errors related to mandatory payrolling in Real Time Information returns will not attract inaccuracy penalties unless there is evidence of deliberate non-compliance. Existing late filing and late payment penalties still apply, and from 2028 to 2029 onwards penalties and interest apply normally (gov.uk). There is no change to the penalties that apply to P11D and P11D(b) returns where you are still required to file them.

The detailed scope, exclusions and operational rules come in secondary legislation to be introduced at Budget 2026. Treat the phase 2 list as firm in principle and provisional in detail until then.