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HMRC has confirmed that the introduction of mandatory payrolling of Benefits in Kind (BiKs) will now be phased in over two years from April 2027.
The move follows extensive consultation with employers, payroll software providers and professional bodies, who raised concerns about the practical challenges of implementing the new rules.
What is changing?
From 6 April 2027, employers will be required to put the following benefits through the payroll:
- company cars
- company car fuel
- vans
- van fuel
- private medical insurance and medical benefits.
Most other BiKs, such as beneficial loans and living accommodation, will remain outside the mandatory regime until April 2028.
In practice, this means employers will report the taxable value of these benefits through payroll during the tax year, rather than annually via a P11D form, so employees pay the correct tax in real time.
Why is it a phased approach?
A single-step transition would have required every business providing any benefit in kind to overhaul payroll and reporting processes simultaneously. Phasing the higher-volume benefits, cars, vans and medical cover, into the first stage gives employers and software providers more time to prepare for the remainder before the second phase in April 2028.
Voluntary payrolling remains available
HMRC has confirmed that from November 2026, employers will be able to register voluntarily to payroll other benefits that are not yet subject to the mandatory rules. This includes benefits such as beneficial loans and living accommodation.
For some employers, adopting voluntary payrolling before it becomes compulsory may help smooth the transition and reduce the administrative burden associated with annual P11D reporting.
What happens to P11Ds?
As more benefits move into payroll, the reliance on P11D forms will gradually reduce. However, employers will still need to comply with existing reporting requirements until the new rules apply to the benefits they provide.
HMRC is expected to publish updated interim guidance in July 2026, with final guidance for the first phase due in autumn 2026.
You can read learn about the P11D deadline here: P11D deadline 2026: what employers need to submit and by when
How should employers prepare for the P11D and BiK changes?
While the phased introduction provides additional breathing space, employers should not view this as a reason to delay preparations.
Businesses that provide company vehicles or private medical cover to employees should begin reviewing their current processes and payroll systems to ensure they can accommodate the new reporting requirements.
Employers should also check that their payroll software provider is ready for the changes and understand what system updates may be required ahead of April 2027.
Early preparation will help minimise disruption and ensure a smooth transition when mandatory payrolling begins.
How UHY can help
With payroll reporting requirements continuing to evolve, it's important to be prepared. UHY's outsourced payroll bureau supports businesses through legislative changes, helping to maintain accurate payroll records, meet compliance obligations and implement new requirements with confidence.
If you would like to discuss how the changes to payrolling of BiKs will affect your business, or need support preparing your payroll processes, please contact Sarah Gibbs, or your local UHY payroll adviser.
