From 6 April 2027, around 280,000 UK employers that currently report benefits in kind after the tax year ends will have to report the most common benefits through payroll in real time, with employer Class 1A National Insurance charged at 15% for the 2026-27 tax year ([6]) ([4]). The change ends the voluntary era for company cars, fuel, vans and medical cover and folds their tax into the same submission that already carries salary.
Mandatory payrolling of benefits in kind is the requirement to calculate Income Tax and Class 1A National Insurance on a benefit and report it through Real Time Information each pay period, instead of on a year-end P11D ([6]). The government first announced the measure in January 2024 and confirmed on 28 April 2025 that more time would be given to prepare, moving the start from April 2026 to a phased rollout beginning April 2027 ([6]).
This explainer sets out the phased timeline, which benefits fall in and out of scope, the deadlines and the one-off cash flow overlap employers face, and the practical steps to prepare. It is written for employers, finance teams, payroll bureaux and the software platforms that will carry the new reporting.
Key takeaways
- Mandatory payrolling begins on 6 April 2027 for company cars, car fuel, vans, van fuel and private medical benefits.
- A second phase from 6 April 2028 extends the requirement to most remaining benefits in kind.
- Employer-provided loans and living accommodation stay outside mandation and continue on the year-end route for now.
- Employers do not register for the mandatory benefits, because payrolling becomes the default and HMRC removes those benefits from tax codes.
- HMRC will not charge inaccuracy penalties for non-deliberate mistakes in the first year, though late filing and late payment penalties still apply.
What the reform actually does
The measure reforms how benefits in kind are reported and how the tax on them is paid ([6]). Under the current system, most benefits are reported once a year on a P11D and the Income Tax is generally collected after the year end through a tax code adjustment ([2]). The reform moves that reporting into payroll, so tax is deducted in real time as the benefit is enjoyed ([6]).
HMRC's stated aim is to modernise the taxation of benefits by integrating reporting and payment into real-time payroll, improving the accuracy of tax paid during the year and reducing end-of-year adjustments ([6]). The government estimates a continuing net saving of around £18 million a year in administrative burden once the change beds in, against one-off familiarisation costs of about £8 million ([6]). The legal framework sits in the Income Tax (Earnings and Pensions) Act 2003 and the Pay As You Earn Regulations 2003, with the detailed scope to be set by secondary legislation at Budget 2026 ([6]).
The phased timeline
HMRC chose a phased introduction rather than a single switchover, which is the single most important thing for an employer to understand about the reform ([16]). The phasing spreads the burden and gives payroll software developers time to build the extra Real Time Information fields ([9]).
The table below sets out what falls into each phase.
| Phase | Effective date | Benefits brought into mandatory payrolling |
|---|---|---|
| Phase 1 | 6 April 2027 | Company cars, car fuel, vans, van fuel, private medical benefits |
| Phase 2 | 6 April 2028 | Most remaining benefits in kind |
| Not yet in scope | To be confirmed | Employer-provided loans and living accommodation |
Phase 1 covers the benefits that make up the large majority of all benefits provided in the UK, which is why HMRC prioritised them ([16]). Phase 2 sweeps in most of the rest from 6 April 2028, completing the regime ([6]).
Why loans and accommodation are treated differently
Employer-provided loans and living accommodation are held outside mandation because stakeholder feedback flagged them as particularly burdensome to payroll ([6]). Employers providing these will continue to use the existing year-end P11D process until they are brought within scope at a later stage ([6]). Employers can, however, choose to payroll them voluntarily from April 2027 so they run a single process rather than two ([7]).
What changes on the payslip and the submission
For a benefit within scope, both the Income Tax and the Class 1A National Insurance will be reported through the Full Payment Submission each pay period and paid in real time ([6]). This is a genuine change from the current voluntary process, where payrolling handles only the Income Tax and the Class 1A still waits for the annual P11D(b) ([3]). Under mandation, the Class 1A on the mandatory benefits moves into the monthly rhythm alongside the tax ([6]).
Employers will not need to register to payroll the mandatory benefits, because payrolling becomes the default, and HMRC will automatically remove those benefits from employees' tax codes ready for 6 April 2027 ([7]). An employer that also wants to payroll non-mandatory benefits, including loans and accommodation, will register through a service HMRC reopens in November 2026, with a deadline of 5 April 2027 ([7]). Platforms embedding UK payroll through an HMRC-recognised payroll API will carry the new submission fields so the change is absorbed in software ([6]).
How company car values feed the calculation
For the largest in-scope benefit, the taxable value fed into the submission is the car's list price multiplied by an appropriate percentage set by its carbon dioxide emissions, reduced by any employee capital contribution of up to £5,000 ([9]). Private fuel is a separate benefit with its own charge, which is why the reform lists car fuel and van fuel as distinct items ([10]). The reform also allows the market value of a classic car to be calculated at the beginning of the tax year, one of several technical adjustments in the legislation ([6]).
How mandation differs from the current voluntary process
Voluntary payrolling has existed for years, so it helps to be precise about what mandation adds ([2]). The current voluntary process requires the employer to register before the tax year, and it handles only the Income Tax on the benefit, leaving the Class 1A National Insurance to be totalled and paid after year end on a P11D(b) ([3]). Mandation removes the registration step for the in-scope benefits and pulls their Class 1A into real time ([6]).
The table below contrasts the two on the points that matter to a payroll team.
| Feature | Current voluntary payrolling | Mandatory payrolling from April 2027 |
|---|---|---|
| Registration before the year | Required | Not required for in-scope benefits |
| Income Tax collection | Real time through payroll | Real time through payroll |
| Class 1A National Insurance | Year-end P11D(b) | Real time through the Full Payment Submission |
| Tax code adjustment | HMRC removes the benefit | HMRC removes the benefit automatically |
| Scope | Employer's choice, some benefits excluded | Cars, fuel, vans, medical from 2027, most others from 2028 |
The table shows that the mechanics of Income Tax collection barely change, while the National Insurance treatment and the removal of the registration step are the substantive differences ([6]). An employer already using voluntary payrolling is therefore well placed, and HMRC encourages early adoption of the current voluntary process as a way to test systems before mandation ([7]).
The deadlines that still apply
Until mandation begins, the P11D calendar continues to govern benefits, and it governs the loans and accommodation that stay outside the mandatory rules afterwards ([2]). The dates below apply to a tax year ending on 5 April ([3]).
| Action | Deadline |
|---|---|
| File P11D and P11D(b) with HMRC | 6 July after the tax year |
| Give employees their benefit information | 6 July |
| Pay Class 1A National Insurance (electronic) | 22 July |
| Pay Class 1A National Insurance (post) | 19 July |
A late P11D(b) attracts an automatic penalty of £100 for every 50 employees, for each month or part month it is late, with interest and further penalties on late Class 1A payment ([3]). To ease the transition, HMRC will not charge inaccuracy penalties for non-deliberate mistakes in mandatory payrolling within the 2027 to 2028 Real Time Information returns, though late filing and late payment penalties and statutory interest can still apply ([7]). Accountants running this across many client schemes typically use a multi-client payroll dashboard to keep every scheme on the calendar ([2]).
The one-off cash flow overlap
The reform creates a temporary double payment that employers should budget for. In July 2027 an employer will still owe Class 1A on benefits provided in the 2026-27 tax year under the old P11D system, while also paying Class 1A in real time on benefits provided from April 2027 onwards ([7]). That produces a one-off overlap where two sets of Class 1A fall due in the same financial year ([7]).
HMRC advises employers to reflect this dual obligation in their budgets ([7]). For a larger employer with a substantial car fleet, the overlap can be a meaningful sum concentrated in a single month, so it is worth modelling early ([9]). Employers running higher payroll volumes across multiple entities often manage this through an enterprise payroll setup that reports each entity's benefits cleanly ([6]).
How to prepare before April 2027
HMRC's own guidance is that preparing early is the key to a smooth transition, and it warns employers not to underestimate the time it takes to make payroll processes robust enough for real-time benefit reporting ([7]). Three steps carry most of the weight.
First, the employer should list every benefit it provides and identify which would normally appear on a P11D, so it knows exactly what will need to be payrolled ([7]). Second, it should confirm the information flow from HR and benefit providers into payroll works period by period, because HMRC identifies that flow as the weakest link, especially where a benefit such as fuel changes mid-year ([8]). Third, it should check that its payroll software can handle the extra Full Payment Submission data and is compliant with HMRC's requirements ([7]).
Communicating with employees is the step employers most often overlook. Staff who currently pay tax on benefits in arrears through a tax code will start paying in real time, and some may appear to pay tax twice in the first year as real-time deductions run alongside catch-up of earlier underpayments ([7]). Clear early communication prevents a wave of payslip queries, and employers running in-house payroll on HMRC-recognised payroll software can lean on the software's benefit calculations to explain the figures ([7]). Readers who want the underlying National Insurance mechanics can follow the guide to understanding employer National Insurance ([4]).
What developers and platforms need to build
The reform lands hardest on payroll software, because the change is a data and submission change rather than a change to the underlying tax rules ([6]). Software has to calculate the taxable value each period, add the notional pay, compute the Class 1A in real time for the mandatory benefits, and carry the extra fields on the Full Payment Submission ([16]). HMRC has reduced the initial data field requirement to ease the first phase, but the direction is clearly towards richer real-time benefit data ([16]).
For HR platforms, enterprise resource planning systems and bureau tools that want to deliver UK payroll without owning the compliance work, embedding a payroll engine that already handles the new fields is the cleanest path ([6]). A platform that plugs into a UK payroll engine keeps its users inside its own product while the engine carries the submissions, which is a different model from a data integration that only syncs figures out ([15]). Teams weighing that build can speak to the Moonworkers team about the reporting fields the reform introduces ([6]).
Conclusion
Mandatory payrolling is less a change to what benefits are taxed and more a change to when and how the tax reaches HMRC. The rules that value a company car or a medical policy stay the same; what changes is that the tax and, for the mandatory benefits, the Class 1A National Insurance move into real time through the Full Payment Submission, in two phases starting 6 April 2027 and completing 6 April 2028.
The employers that come through the transition most smoothly will be the ones that map their benefits now, tighten the flow of benefit data into payroll, budget for the one-off Class 1A overlap in July 2027, and let recognised software carry the new submissions. The reform points the whole system in one direction: benefits sitting inside real-time payroll alongside salary, reported through the same pipe that already carries Pay As You Earn.
Frequently asked questions
When does mandatory payrolling of benefits in kind start?
The first phase starts on 6 April 2027 and covers company cars, car fuel, vans, van fuel and private medical benefits ([5]). A second phase from 6 April 2028 extends the requirement to most remaining benefits in kind, while employer-provided loans and living accommodation stay outside mandation for now ([6]).
Which benefits are excluded from mandatory payrolling?
Employer-provided loans and living accommodation are held outside the mandatory rules because they are considered particularly burdensome to payroll ([6]). Employers can still choose to payroll them voluntarily to avoid running two separate processes, by registering through the service that reopens in November 2026 ([7]).
Do employers have to register for mandatory payrolling?
No. Employers do not register to payroll the mandatory benefits, because payrolling becomes the default and HMRC removes those benefits from employees' tax codes automatically ([7]). Registration is only needed for voluntarily payrolling non-mandatory benefits, with a 5 April 2027 deadline for the 2027 to 2028 tax year ([7]).
Will there be penalties for getting mandatory payrolling wrong at first?
HMRC will not charge inaccuracy penalties for non-deliberate mistakes in mandatory payrolling within the 2027 to 2028 Real Time Information returns ([7]). Late filing and late payment penalties, and statutory interest, can still apply, so the easement covers accuracy rather than timing ([3]).