Payrolling Benefits in Kind: More time to prepare, but not a reason to wait

18 June 2026

HMRC has confirmed that mandatory payrolling of Benefits in Kind (BiKs) will be introduced in a phased way, giving employers more time to prepare for what is ultimately a significant shift to real-time reporting.

For employers, one of the biggest challenges with the move to mandatory payrolling of Benefits in Kind (BiKs) hasn’t been the change itself, but keeping pace with the changing timetable.

What was originally expected to arrive in April 2026 was subsequently deferred to April 2027. HMRC has now confirmed a phased rollout, with some benefits becoming mandatory from April 2027 and others following in April 2028.

Whilst the additional preparation time will be welcomed by many organisations, repeated changes to implementation dates can make planning difficult. Many employers have already spent time assessing systems, reviewing processes and considering resource requirements, only to find the timeline move once again.

The latest announcement provides certainty for employers, who now have a clearer roadmap for transitioning to real-time Benefits in Kind reporting.

The direction of travel remains unchanged. Mandatory payrolling is coming, and organisations that use this additional time to prepare will be best placed for a smooth transition.

What’s changing and when?

Phase 1: From 6 April 2027

The first phase introduces mandatory payrolling for:

Company cars and fuel

Vans and van fuel

Employer-provided private medical benefits

From this point, these benefits must be processed through payroll in real time. Income Tax and Class 1A National Insurance will be reported via the Full Payment Submission (FPS).

P11Ds will no longer be used for these benefits. All other Benefits in Kind will continue to be reported via P11Ds, or included in voluntary payrolling arrangements (if already in place).

Phase 2: From April 2028

The second phase expands mandatory payrolling to cover most remaining Benefits in Kind.

From April 2028, the majority of BiKs will need to be payrolled and reported in real time.

The use of P11Ds will reduce significantly, however, two categories will remain outside mandatory payrolling for now:

Employment-related loans

Accommodation benefits

These will continue on a voluntary basis until further notice.

A simpler reporting framework

Although the phased approach is helpful, this is still a meaningful shift in how benefits are handled.

In the short term, many organisations will find themselves working across a hybrid model. Some benefits will sit within payroll, while others remain in P11Ds or voluntary arrangements. Managing that split accurately will be essential to avoid duplication, errors and compliance risks.

More fundamentally, benefits reporting is shifting from a largely year-end exercise to an ongoing, real-time process.

This places greater importance on:

Accurate and timely data flowing into payroll.

Close coordination between payroll, HR and benefits teams.

Payroll systems that can handle real-time calculations and reporting.

From an employee perspective, tax on benefits will be reflected in pay as it happens, rather than retrospectively. While this improves transparency, it can also lead to more visible fluctuations in net pay, making employee communication more important than ever.

An opportunity to modernise

While the changes introduce new challenges, they also offer a genuine opportunity to improve how benefits are managed.

Payrolling Benefits in Kind can:

Reduce reliance on P11Ds.

Improve accuracy and timeliness of tax reporting.

Create a more consistent and transparent process.

The phased rollout gives you time to step back, review your current approach and make changes in a structured way, rather than reacting under pressure.

How we can support you

These changes go beyond technical compliance: they impact processes, systems and the way information flows across your organisation. Our payroll team can help you to understand what the changes mean in practice, assess your readiness for both phases and build a clear, workable transition plan tailored to your organisation.

If you’re considering a more hands-off approach, our payroll outsourcing service ensures your payroll is fully compliant and future-ready. We manage the reporting, calculations and submissions, including Benefits in Kind, so you don’t have to worry about keeping pace with changing requirements.