Mandatory payrolling of benefits: are you ready for April 2027?

For years, many employers have handled benefits in kind (BiKs) through end-of-year reporting, then dealt with employee tax code changes afterwards. That is soon to change. From April 2027, most taxable benefits in kind and expenses will need to be reported through payroll in real time using RTI (via the Full Payment Submission). This is what HMRC is referring to as mandatory payrolling of benefits.

This will affect employers of all sizes. Larger businesses may feel it first because their benefits are usually more varied and data often sits with third-party providers, but smaller employers offering perks like company cars or private medical cover will need a plan too.

What does “payrolling benefits” mean?

In simple terms, payrolling benefits means collecting Income Tax on taxable benefits through the payroll during the tax year, rather than reporting the benefit after the year-end on a P11D and collecting tax later through an employee’s tax code.

Under the current (voluntary) system, employers can payroll many (but not all) benefits as long as they register before the tax year starts.

What’s changing with the mandatory payrolling of benefits?

1) Real-time reporting through RTI (FPS)

From April 2027, HMRC expects the taxable values for most BiKs and taxable expenses to be reported through the Full Payment Submission (FPS), using RTI in the same way you currently report employee pay.

HMRC has also indicated the number of RTI data fields will increase to include what is currently reported on P11D/P11D(b).

2) Income Tax and Class 1A NIC move to real-time payment

Mandatory payrolling is not just about employee tax. HMRC’s interim guidance explains that Class 1A National Insurance (the employer’s NI bill on benefits) will also move to real-time reporting and payment from April 2027.

3) P11Ds reduce significantly (but not completely for everyone)

HMRC’s technical note makes clear that, from April 2027, employers generally will not need to register to payroll benefits (with some exceptions), and HMRC will take benefits out of employees’ tax codes in readiness. This will see the end of the yearly P11D form for most benefits. However, the employer summary (P11D(b)) will effectively be replaced by real-time submissions.

Note that employment-related loans and accommodation may need to be treated differently because they can be difficult to value within the tax year. Employers may need to carry on P11D reporting for these if they choose not to payroll them.

Key dates and a helpful timeline

If you want to adopt voluntary payrolling early (2026/27)

HMRC says employers have until 5th April 2026 to register for the current voluntary payrolling service for the 2026/27 tax year (for most BiKs, excluding loans and accommodation). After 5th April 2026, you will not be able to register for voluntary payrolling under the current service (except later services for loans and accommodation).

HMRC also notes that the voluntary service will not work in the same way as the new mandatory service, so treat any “trial run” as a process test rather than a perfect dress rehearsal.

From April 2027

Mandatory payrolling (RTI/FPS reporting for most BiKs and taxable expenses) is planned to go live from April 2027.

Watch out for the 2027 cashflow overlap!

HMRC highlights there will be a one-off overlap as the system transitions. In July 2027, you may still need to pay Class 1A NIC for benefits provided in 2026/27 under the current P11D timetable, at the same time as paying Class 1A NIC in real time for benefits provided from April 2027 onwards.

What employers should do now

1) Build a complete benefits and expenses inventory

List everything provided to employees that could be a benefit in kind or a taxable expense. Be sure to include anything handled by third parties (car schemes, insurers, salary sacrifice providers, etc.). HMRC’s model assumes you can identify and value benefits at payroll frequency.

2) Decide where the data will come from, and how often you can get it

For many businesses, the problem is not payroll. It is data timing.

Ask whether you can get accurate monthly values for each benefit in time for the payroll cut-off.  For instance, if you currently wait for fuel card invoices to arrive before processing month-end expenses, you may miss the new real-time reporting window. You’ll need to find ways of resolving any lags before 2027.

HMRC does accept that there will be cases where values are not known during the year. Therefore, it will expect a reasonable estimate process in some scenarios.

3) Check your payroll software readiness

HMRC’s guidance states that reporting will be through FPS with additional fields and that Basic PAYE Tools will be updated for April 2027. Your payroll software provider will be preparing for this.

4) Plan for Class 1A NIC “in-year” and the 2027 overlap

If you spend significant amounts on benefits in kind, moving Class 1A NIC to real-time will change your cashflow. Budgeting for the 2027 “double payment” will be especially important if you are either a larger employer or a benefit-heavy business.

5) Set internal ownership: payroll, finance, HR (and third-party providers)

This is not a payroll-only change. You will need clear owners for:

• data capture and valuations
• approvals and adjustments (late changes happen)
• employee communications (payslips will start to show more benefit-related tax movements)

ICAEW notes that complexity tends to increase with organisation size, benefit variety and internationally mobile staff.

6) Decide whether to adopt voluntary payrolling in 2026/27

Early adoption can be useful to test your internal flow of data and approvals, but remember the voluntary service is different from the mandatory model. If you want to adopt this early, HMRC’s deadline to register for 2026/27 is 5th April 2026.

How THP can help

If you would like help with any aspect of the mandatory payrolling of benefits, speak to your THP account manager today. They’ll be able to help you make sure the transition runs as smoothly as possible, particularly if you currently use our outsourced payroll service.