The Clock Is Ticking on Benefits-In-Kind

Mandatory payrolling arrives in April 2027 — and most employers aren’t ready

What you need to know

There is now less than a year to go before all employers must tax benefits-in-kind via the payroll, the Chartered Institute of Taxation has warned. Benefits-in-kind are non-cash benefits provided by employers to employees or directors. Common benefits include company cars, private medical insurance and gym membership.

While the benefit is paid for by the employer, the recipient is required to pay Income Tax and potentially National Insurance contributions (NICs) on the value of the benefit, as if this value had been added to their salary. Additionally, the employer must pay employer NICs on the value of the benefit. According to HMRC, more than 3.5 million employees receive a taxable benefit-in-kind.

Currently, most employers compute the value of a taxable benefit after the end of the tax year and report it on a P11D form to HMRC and the employee — giving them potentially up to 15 months to calculate, verify and report. From 6 April 2027, it will be a legal requirement to report and pay Income Tax and NICs on most benefits-in-kind and taxable expenses payments via payroll rather than waiting until the end of the tax year.

Mandatory payrolling of benefits will have a big impact on employers, employees and software providers. Don’t leave it too late to get ready for this change.’ – Sarah Hewson, Vice-Chair, CIOT Employment Taxes Committee

We share that warning — and we’d go further. At Atek, we’ve seen how often major HMRC process changes catch businesses off guard, and this one has the potential to be particularly disruptive for those who leave preparation to the last minute.

Key deadline: 6 April 2027 — mandatory payrolling of benefits in kind takes effect

The move to mandatory payrolling is being presented by the government as a simplification — cutting red tape for employers and HMRC alike. In our view, the benefit to HMRC is clear: millions of P11D forms to process, coding notices to issue, and year-end reconciliations will all become a thing of the past for them. For employers, however, the picture is considerably more complex.

Why this is harder than it looks

Under the current P11D system, there is a degree of breathing room. Employers have until the following July to finalise benefit values and report them. Under mandatory payrolling, those values must flow through payroll in real time, every single pay period. As the CIOT has observed, once-a-year P11Ds are effectively being replaced by monthly or weekly equivalents — just embedded in your payroll process rather than a standalone return.

There are also unresolved technical questions that concern us. HMRC’s current guidance does not yet specify how Class 1A National Insurance will be calculated on a month-by-month basis. The treatment of globally mobile employees and other complex cases remains unclear. And there is a sequencing problem: the post-year-end update window closes on 22 July, yet employers must provide employees with a summary of payrolled benefits by 1 June — a gap that needs addressing before the rules go live.

There is also a short-term cash flow consideration. Under the existing rules, Income Tax and NICs on benefits are generally settled after the year ends. Under mandatory payrolling, both employers and employees will begin paying monthly from April 2027. For organisations with significant benefit costs — large company car fleets, widespread private medical cover — this shift in timing could have a meaningful working capital impact that is worth modelling now.

Our practical advice: start today

If you are currently using P11D reporting, here is what we recommend ahead of April 2027:

Audit your current benefits and confirm which fall within the mandatory scope — loans and accommodation remain P11D-reported unless voluntarily payrolled.
Contact your payroll software provider now to understand their implementation timeline and readiness for real-time benefit data capture.
Review data flows between HR, benefits providers, fleet suppliers, and payroll — real-time accuracy is the cornerstone of the new system.
Update service level agreements with third-party benefit providers to ensure they can supply timely, accurate data each pay period.
Model the cash flow impact on the business and your employees, particularly where benefit values are high or widespread.

If you are already voluntarily payrolling some benefits, do not assume you are prepared. The new mandatory requirements go substantially further than the existing voluntary framework, with considerably more data required at each reporting point.

One year sounds like ample time. In our experience with major payroll changes, it rarely is — especially once you factor in software development timelines, supplier negotiations, and internal sign-off processes. Do not wait for HMRC to publish clearer guidance before you begin. The direction of travel is fixed; the time to act is now.