Posted June 22, 2026

HMRC Changes Plans for Mandatory Payrolling of Benefits in Kind

The government has announced a change in the approach to the introduction of mandatory payrolling of benefits in kind (BIK), offering employers a more gradual transition to what is set to be a significant change in payroll reporting.

A Phased Introduction

Under the updated plans, mandatory payrolling will no longer be introduced in one step, Instead, the government will adopt a phased approach. From 6 April 2027, only a limited number of benefits will fall within scope, specifically company cars, vans, fuel and employer-provided medical benefits.

All other benefits, with the exception of employment-related loans and living accommodation, will be brought into mandatory payrolling from April 2028. Loans and accommodation will remain outside the mandatory regime for the time being, reflecting the practical challenges of valuing these benefits accurately during the tax year. This marks a clear shift from earlier proposals, under which most benefits were due to be mandated from April 2027.

What Is Changing?

Currently, most employers report benefits in kind to HMRC annually using forms P11D and P11D(b). Tax is then collected retrospectively, typically through adjustments to employees’ tax codes or via other mechanisms such as self assessment.

Under the new system, benefits will instead be taxed in real time through payroll. This means:

• Income tax will be deducted during the year via PAYE
• Class 1A National Insurance contributions (NICs) will also be reported in real time
• P11D forms will no longer be required for benefits within the mandatory regime

The move aligns the taxation of benefits more closely with how salaries are currently processed, improving accuracy and reducing the need for year-end adjustments.

Why the Plans Have Been Revised

The revised timetable comes in response to feedback from professional bodies, employers and software developers. Concerns had been raised that the original deadlines did not allow sufficient time to update payroll systems and processes to accommodate real-time reporting.

In addition, the complexity of the proposed reporting requirements, particularly the volume of data needed, was seen as a potential barrier to successful implementation. HMRC has since simplified these requirements and reduced the number of data fields, making the transition more manageable. By phasing in the rollout, the government aims to reduce disruption, allow further testing, and give employers more time to adapt.

What Employers Should Do Now

Although the delay provides breathing space, the changes remain significant. Employers should take proactive steps now to prepare, including:

• Reviewing all benefits provided to employees
• Identifying which benefits will fall into phase one and phase two
• Ensuring payroll software can handle real-time reporting via RTI
• Updating internal processes to capture benefit data throughout the year
• Communicating upcoming changes to employees

Early preparation will be essential to ensure a smooth transition and avoid compliance issues once the rules take effect.

The move to mandatory payrolling of benefits in kind represents a major shift in how employee benefits are taxed and reported in the UK. While the revised timeline eases some of the immediate pressure, it does not reduce the scale of the change.

Employers should use the additional time wisely. By starting preparations now, reviewing systems and understanding the phased approach, businesses can ensure they are ready for the transition to real-time reporting and avoid last-minute challenges as the new rules come into force.