Mandatory Payrolling of Benefits in Kind: HMRC Confirms a Phased Start from April 2027
HMRC has updated its interim guidance on mandatory payrolling of Benefits in Kind (BiKs), and it’s welcome news for employers preparing for the changes.
Rather than moving every taxable benefit onto payroll in one go from April 2027, HMRC has confirmed the transition will now take place in two phases.
We covered the original April 2027 deadline in an earlier post. This latest update provides greater clarity on what employers need to have in place for 2027 and what can wait until later.
What’s Changing, and When?
From April 2027, mandatory payrolling will apply to a smaller group of benefits than originally planned.
The Phase 1 benefits are:
- Company cars and fuel.
- Vans and van fuel.
- Private medical benefits.
All other taxable benefits, including gym memberships, professional subscriptions, interest-free loans and similar benefits, will continue to be reported using P11D forms or through voluntary payrolling.
HMRC intends to bring most of the remaining benefits into mandatory payrolling from April 2028, while loans and accommodation benefits will follow at a later date that has yet to be confirmed.
Why HMRC Has Changed Course
The phased approach follows feedback from payroll software providers and professional bodies, including the Chartered Institute of Payroll Professionals (CIPP), regarding the scale of the original proposal.
Reporting every Benefit in Kind through the Full Payment Submission (FPS) would have required payroll software to support more than 100 separate data fields.
Under the revised Phase 1 approach, only 32 data fields are required, giving software developers significantly more time to build, test and release reliable functionality.
As before, the taxable value of in-scope benefits will be reported through the Full Payment Submission (FPS), allowing tax and Class 1A National Insurance contributions to be calculated and reported in real time instead of through an annual P11D submission.
What This Means if You Already Planned to Payroll Everything
If your business had already planned to voluntarily payroll all employee benefits before the original April 2027 deadline, you can still continue with that approach.
HMRC has confirmed that only company cars, vans and private medical benefits need to be reported using the new FPS fields.
Any additional benefits that you choose to payroll voluntarily will continue to be processed through the existing voluntary payrolling system, and employers will likely still need to register for voluntary payrolling where appropriate.
What We’d Recommend Doing Now
- Review the employee benefits you currently provide and identify which fall within the three Phase 1 categories.
- Speak with your payroll software provider to understand when support for the new FPS reporting fields will be available.
- If you provide additional taxable benefits, don’t assume they’re no longer relevant. Phase 2 is expected from April 2028, so it’s sensible to begin planning ahead.
- Keep an eye on HMRC’s forthcoming technical guidance, which is expected to provide further clarification on the remaining details.
- If you’ve already started preparing for the original all-in-one implementation, don’t discard that work. Much of it will still be valuable when Phase 2 begins.
Where Pecunia Pro Fits In
We understand how disruptive legislative changes can be, particularly when implementation plans change midway through your preparations.
Our team is closely monitoring HMRC’s latest guidance and will ensure our clients’ payroll systems are correctly configured for Phase 1, without carrying out unnecessary work for benefits that now have an additional year’s grace.
Speak to Pecunia Pro
Want to know exactly which of your employee benefits fall into Phase 1, and what your payroll software needs to support before April 2027?
Call us on 020 8143 1529 or email info@pecuniapro.co.uk, and we’ll be happy to talk you through it.