Mandatory Payrolling of Benefits in Kind: What Employers Need to Know
Episode 344 •
4th October 2026 • The UK Tax and Accounting Podcast from I Hate Numbers: • I Hate Numbers
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00:08:05
Shownotes
Mandatory payrolling of benefits in kind will change how employers report taxable employee benefits, how payroll systems handle those benefits, and when tax and Class 1A National Insurance liabilities are paid. Instead of relying mainly on year-end P11D reporting, more benefits will be reported through payroll in real time. In this episode, we explain what payrolling benefits means, why HMRC is moving in this direction, how the phased timetable works, what it means for P11Ds and cash flow, and what employers should start reviewing now.
About this episode
Many employers provide benefits to employees. These can include private medical insurance, company cars, gym memberships and certain expense payments. Those benefits can create a tax liability. Traditionally, many benefits were reported after the end of the tax year using a P11D. HMRC would then adjust the employee’s tax code so the tax could be collected later. Mandatory payrolling of benefits in kind changes that process. Instead of waiting until the year-end, the taxable value of the benefit is processed through payroll during the year. That means tax is collected closer to the time the benefit is received.Why this matters
This is one of the most significant payroll reporting changes employers have seen for many years. The long-term aim is to make reporting more real time, reduce year-end paperwork, cut down on later tax code adjustments and make tax deductions more predictable for employees. However, employers still need to prepare carefully. Payroll systems, reporting processes, internal controls, employee communication and cash flow forecasts may all need reviewing before the changes become mandatory.“Good planning today avoids unnecessary pressure tomorrow.”
Key points from this episode
What is payrolling of benefits?
Payrolling benefits means including the taxable value of a benefit in payroll during the tax year. For example, if an employee receives private medical insurance worth £800 a year and is paid monthly, the taxable value may be spread across the year. Approximately £67 would be added to taxable pay each month for income tax purposes. The employee is taxed as the year progresses, rather than waiting for a later tax code adjustment after a P11D has been submitted.When will mandatory payrolling start?
HMRC is introducing mandatory payrolling in stages. Current HMRC guidance says the phased introduction starts from 6 April 2027. The first phase applies to company cars, car fuel, vans, van fuel and medical benefits. Most other in-scope benefits are expected to become mandatory from April 2028. Taxable cheap loans and living accommodation continue to have special treatment. These areas can still be payrolled voluntarily, but they are not part of the same mandatory timetable. Because the rules are still developing, employers should check the latest HMRC guidance before taking action.Why is HMRC making this change?
The move is part of a wider shift towards real-time reporting. HMRC wants tax to be reported and collected closer to the point when the income or benefit is received. This should reduce later tax code changes, make deductions more predictable and align benefits reporting more closely with modern payroll systems. For employees, this may mean fewer unexpected tax surprises. For employers, it should eventually mean fewer year-end forms, but only once systems and processes are ready.What happens to Class 1A National Insurance?
Employers need to pay close attention to Class 1A National Insurance. At the moment, many employers calculate Class 1A National Insurance annually through the P11D and P11D(b) process. Payment is usually made after the tax year has ended. Under mandatory payrolling, the associated Class 1A National Insurance will move into payroll reporting. The total liability may not necessarily change, but the timing certainly does. That timing difference matters because it can affect cash flow.Why cash flow planning matters
Some employers currently hold on to money until the annual Class 1A National Insurance payment becomes due. With real-time reporting, that delay is reduced. Liabilities arise earlier, so cash flow forecasts may need to be updated. For businesses with strong cash reserves, the impact may be modest. For seasonal businesses, charities, smaller organisations and creative enterprises with fluctuating income, earlier payments can be more noticeable. Our episode on Cash Flow Management Tips is a useful next step if you want to strengthen your cash flow planning before new payroll timing creates pressure.What happens to P11D forms?
One of the biggest long-term outcomes is the gradual decline of traditional P11D reporting. Where benefits are payrolled, separate P11D reporting will generally no longer be required for those benefits. This should reduce paperwork and simplify year-end compliance. However, P11Ds and P11D(b)s may still be needed for exceptions, such as certain loans and accommodation benefits, where they have not been payrolled. Employers should not assume that P11Ds disappear overnight. The key is to understand which benefits are covered, which are excluded, and what still needs reporting.Six practical steps for employers
Employers should treat mandatory payrolling as a planning exercise, not a last-minute compliance issue.- Review the benefits you currently provide.
- Check whether your payroll software can support the new requirements.
- Review internal reporting processes and controls.
- Consider the cash flow impact of earlier Class 1A National Insurance payments.
- Communicate the upcoming changes clearly to employees.
- Consider whether voluntary payrolling before the mandatory dates would be useful.
Current guidance note
This is a developing HMRC area. Before publishing, employers should confirm the latest guidance on the mandatory payrolling timetable, which benefits are included in each phase, how Class 1A National Insurance will be reported, and which P11D or P11D(b) obligations remain. The current guidance points to a phased approach from April 2027, with most remaining in-scope benefits following from April 2028.FAQs
What is mandatory payrolling of benefits in kind?
Mandatory payrolling of benefits in kind means employers report taxable employee benefits through payroll during the tax year, rather than relying mainly on year-end P11D reporting.When does mandatory payrolling of benefits in kind start?
Current HMRC guidance says mandatory payrolling starts in phases from 6 April 2027. Phase one applies to company cars, car fuel, vans, van fuel and medical benefits. Most other in-scope benefits are expected to follow from April 2028.Will P11D forms disappear?
P11D reporting should reduce where benefits are payrolled, but it will not disappear completely straight away. Some exceptions, such as certain loans and accommodation benefits, may still require separate reporting.How does mandatory payrolling affect Class 1A National Insurance?
Class 1A National Insurance linked to payrolled benefits will move closer to real-time payroll reporting. The total amount payable may not necessarily change, but the timing of payments may change.Why should employers prepare now?
Employers should prepare now because payroll software, internal processes, employee communication and cash flow forecasts may all need updating before the mandatory dates apply.Episode Timecodes
- 00:00 – Mandatory payrolling of benefits in kind
- 00:17 – Why employers should start planning now
- 00:51 – What payrolling of benefits means
- 01:17 – Moving away from year-end P11D reporting
- 01:40 – Private medical insurance example
- 02:23 – Phased rollout and key dates
- 03:11 – Why HMRC is making the change
- 03:55 – Class 1A National Insurance impact
- 04:37 – Cash flow considerations
- 05:22 – What happens to P11D forms
- 06:06 – Six steps employers should take now
- 06:58 – Final thoughts and support
Related episodes
- Benefits in Kind: Your Tax Strategy Upgrade
- Saving Tax with Company Benefits
- Fuel Perks or Tax Trap: The Truth About Company Car Benefits