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Mandatory payrolling of benefits in kind from April 2027

Written by Akash Agarwal

12 October 2026

Overview of the 2027 payrolling requirement

From 6 April 2027, mandatory real-time reporting of taxable expenses and the most commonly provided benefits in kind will begin. Employers will need to report taxable expenses and specified benefits through payroll software, calculate income tax and Class 1A National Insurance contributions (NICs) in real time, and report the relevant information to HMRC through the Full Payment Submission (FPS) under Real Time Information (RTI). For employers that have not already adopted voluntary payrolling, this will require co-ordinated changes across payroll, human resources (HR), benefits and finance.

At a glance

From 6 April 2027, phase one will cover:

Taxable expenses
Company cars
Car fuel
Vans
Van fuel
Employer-provided medical benefits

From 6 April 2028, phase two will extend mandatory payrolling to most other benefits. Employer-provided loans and living accommodation will remain outside mandatory payrolling until a later date.

The government had previously intended mandatory payrolling to apply to almost all benefits from April 2027. However, following consultation with employers and software developers, HMRC announced in June 2026 that implementation would be phased, with some benefits not brought within scope until April 2028. In practice company cars and medical benefits represent significant areas of P11D reporting for many employers, so the first phase may still require substantial payroll and data changes from April 2027.

What mandatory payrolling of benefits in kind and expenses means

For taxable expenses and benefits payrolled in real time, employers will generally no longer report the expense or benefit through the annual P11D process, subject to limited exceptions and the new end-of-year benefits update process.
Income tax and Class 1A NICs will be calculated in real time and the relevant information reported to HMRC through RTI.
Employees will generally pay income tax on taxable expenses and in-scope benefits in each pay period, rather than through PAYE coding adjustments or self-assessment.
Employers will report and pay Class 1A NICs during the tax year instead of making a single annual payment after the year end.

HMRC will introduce an end-of-year benefits update process for benefits that could not be fully reported or corrected through payroll during the tax year. This will involve revising the final FPS, although the submission deadline has not yet been confirmed. Any additional Class 1A NICs will remain payable by 22 July. Further guidance is expected on how the process will operate in practice.

Benefits and expenses subject to mandatory payrolling from April 2027 (phase one)

From 6 April 2027 (phase one), mandatory payrolling will apply to:

Taxable expenses
Company cars
Car fuel
Vans
Van fuel
Employer-provided medical benefits

For these purposes, taxable expenses broadly mean expenses that are currently reportable through the P11D process and subject to Class 1A NICs. Exempt business expenses will remain outside payroll, while cash reimbursements that are treated as earnings should already be processed through payroll and subject to PAYE and Class 1 NICs.

When will mandatory payrolling apply to other benefits?

From 6 April 2028 (phase two), mandatory payrolling will extend to most other benefits in kind. Excluding employer-provided loans and living accommodation, which will remain voluntary until they are brought within scope at a later date.

Employers that choose to voluntarily payroll benefits that remain outside the mandatory regime will need to register with HMRC. The registration service is expected to open in November 2026, and employers wishing to payroll those benefits from April 2027 must register by 5 April 2027.

HMRC has also announced that employers will be able to choose to exclude globally mobile employees from mandatory payrolling from 6 April 2027. HMRC has yet to provide detailed guidance on which employees will qualify, but further information is expected when a new service to facilitate these exclusions becomes available in November 2026. Where an employee is excluded, employers will continue to report benefits using forms P11D and P11D(b) under the existing rules.

Impact on Class 1A National Insurance contributions (NIC)

Class 1A NICs on taxable expenses and mandatorily payrolled benefits will be reported and paid during the tax year
This will accelerate the employer’s cash outflow compared with the current annual payment timetable and should be reflected in budgets and forecasts
The first year may create a particular cash flow impact. In July 2027, employers will still pay Class 1A NIC for 2026-27 under the existing annual process while also paying Class 1A NIC in real time on expenses and benefits provided from April 2027
Employers that voluntarily payroll benefits that fall outside the mandatory phase one regime will also need to report and pay the associated Class 1A NICs in real time from 6 April 2027

How employers should prepare for mandatory payrolling

Employers should begin preparing now. Key actions include:

Review payroll systems and software roadmaps to confirm they can support real-time expense and benefit reporting
Map the data required for each benefit and agree how it will be collected, validated and provided to payroll on time
Develop clear employee communications covering payslips, tax codes, take-home pay and the continued collection of any tax underpayments from earlier years
Model the cash-flow effect of paying Class 1A NICs during the tax year
Plan for fluctuating expenses, benefits, joiners and leavers, globally mobile employees, corrections and year-end reconciliations
Establish a process for handling underpayments, overpayments and employee queries
Establish processes for issuing revised year-end information to employees where benefits are corrected after the end of the tax year