Preparing for Mandatory Payrolling of Benefits-in-Kind: What Employers Need to Know

Overview of the Change

The UK government has confirmed that from 6 April 2027, most employers will be required to report and pay Income Tax and Class 1A National Insurance contributions on Benefits-in-Kind (BiKs) through payroll software—known as mandatory payrolling.(gov.uk) Currently businesses can voluntarily payroll BiKs, but that option will be removed starting in 2027. Employers must register by 5 April 2026 if they wish to payroll for tax year 2026/27; after that, registration closes.(gov.uk)

Which Benefits Are Affected and When

• Phase 1 (from 6 April 2027): Mandatory payrolling of company cars, car fuel, vans, van fuel, and employer-provided medical benefits.(swgroup.com)
• Phase 2 (from 6 April 2028): Most other benefits (excluding certain loans and accommodation) will also be made mandatory.(swgroup.com)

What Employers Should Do Now

1. Audit all Benefits-in-Kind your company offers. Identify which ones are affected immediately and which are coming later.
2. Update payroll systems and software. Ensure systems can capture BiKs reporting in real time. Some vendors offer early beta programs. |
3. Train payroll, HR, and finance teams. They need to understand how taxable values for various BiKs are calculated and when deductions are made. |
4. Register for voluntary payrolling by deadline. If you plan to use payroll for any affected BiKs in 2026/27, complete voluntary registration before 5 April 2026.(gov.uk)

Examples to Illustrate the Impact

• A company car user will see changes in how fuel and emissions are taxed. Employers must report these through payroll rather than via end-of-year forms. |
• Medical benefits: employer-provided private healthcare / medical services must now be added to payroll in 2027 (phase 1 changes) rather than being declared manually at year end. |

Risks of Non-Compliance

• Late or inaccurate registration can lead to penalties if benefits are reported incorrectly. |
• Software or system gaps can mean missing deadlines or failing to include certain types of BiKs. |
• Failure to keep good documentation, especially for “making good” payments for employees—these must align with reporting deadlines. |

Summary

Mandatory payrolling signals a shift toward real-time, digital reporting for taxation in the UK. Employers who start preparing now—auditing benefits, upgrading systems, training staff—will avoid confusion and ensure accurate compliance by the April 2027 deadline.