Mandatory payrolling - phase one

The mandatory payrolling of benefits in kind (BIKs) is being phased in over 2027/28 and 2028/29. From 6 April 2027 you must report company car, company van, fuel and medical benefits through the payroll each payday. This spreads the tax liability across the year for your employees and ensures HMRC receives tax on benefits in real time through PAYE.

Example. Richard, a higher rate taxpayer, is employed by Acom Ltd. Richard has a company car and Acom pays for his private medical insurance. The total value of the benefits is £5,000, which is reported on Richard’s P11D each year. From 6 April 2027, Acom will include an additional £416 (5,000/12) per month on Richard’s payslip. An extra £166 (£416 x 40%) income tax will be collected through PAYE each month and he will no longer receive P11Ds . Acom will also pay Class 1A NI of £62 (£416 x 15%) each month, instead of after the end of the tax year.

Identify which employees will be affected now rather than waiting until the last minute.

Mandatory payrolling - phase two

The payrolling of most other benefits will become mandatory from 6 April 2028. The exceptions are employer-provided loans and living accommodation, although they can be payrolled voluntarily.

Voluntary option

You may be blissfully unaware that it has been possible to voluntarily payroll BIKs for the last ten years. If you’re going to have to payroll some BIKs from 6 April 2027 anyway you should consider whether it will be more cost effective to payroll other BIKs at the same time, or wait until you’re compelled to do it from 6 April 2028.

Reasons to do it

If you don’t offer many other non-mandatory benefits it’s likely to be simpler to payroll all BIKs from 6 April 2027 rather than in two phases. There’s only one transition for your employees and the payroll process. There is a cash-flow cost because Class 1A NI will be payable through payroll instead of by 6 July 2028, even on voluntarily payrolled BIKs.

Example. Acom Ltd provides employees with company cars, private medical insurance and pays for a will writing service if required. The cost of the wills is £350 per employee but only a couple of employees will use it in 2027/28. Acom must payroll the company cars and private medical insurance for 2027/28. It is more efficient to voluntarily payroll the will writing BIK too. This will save Acom having to produce and file a few P11Ds and the impact on cash flow is negligible.

You must register to voluntarily payroll BIKs by 5 April 2027. A new registration service will open in November 2026.

Reasons not to do it

If you offer lots of BIKs that are not mandated from 2027 you might be better off accepting the phased approach. This will give your processes time to bed in without the added pressure of extra BIKs to payroll. You also get the cash-flow benefit of deferring Class 1A NI payment on non-payrolled BIKs until 6 July 2028.