Phased roll-out for mandatory payrolling of benefits in kind: actions for agents to take now

HMRC is urging tax agents to start conversations with employer clients now so they are ready for real-time reporting of benefits in kind (BiKs). Mandatory payrolling is coming in phases, and early preparation will make the transition smoother for payroll teams, software providers and employees.

From 6 April 2027 to 5 April 2028, Phase 1 will apply only to company cars, car fuel, vans, van fuel and medical benefits. Mandatory payrolling for most other benefits follows from April 2028. The staged approach is designed to give employers and payroll providers time to adapt without a single big-bang change.

Talk to employees early

Employees need to understand how Phase 1 will affect their tax codes and take-home pay. Those who currently pay tax in arrears on BiKs will start paying tax in real time on the Phase 1 benefits from April 2027. They will be taxed in the year the benefit is received, rather than through an estimated deduction in their tax code.

Some employees may also still be paying back an underpayment of tax on a benefit from a previous year. From April 2027 it can feel as if they are “paying tax twice.” That is not the case. Agents should help employers explain this clearly and avoid language such as “double taxation,” which incorrectly suggests extra tax is being charged.

Employers should:

• Speak to affected staff well ahead of April 2027
• Prepare for cases where current-year payrolling overlaps with collection of earlier underpayments
• Tell employees experiencing financial hardship to contact HMRC

Clear, early communication reduces surprise and queries once the new rules start.

Practical steps for Phase 1

Agents should now ask clients to:

• List every BiK they currently report on form P11D
• Confirm their payroll software can report Phase 1 benefits in real time and meets HMRC requirements by April 2027
• Decide how they will handle joiners, leavers and benefits that change in value during the tax year
• Understand how underpayments and overpayments will be managed so they can support staff

HMRC expects final guidance and legislation for Phase 1 in autumn 2026. In the meantime, interim guidance is already available.

Voluntary payrolling from November 2026

Employers who want to get ahead can register from November 2026 for voluntary payrolling of other BiKs not covered in Phase 1, including loans and accommodation. This option lets payroll teams test processes before the later mandatory date.

Agents who have already begun these conversations are in a strong position. Those who have not should start now. Listing benefits, checking software capability and briefing employees are the highest-value actions before the first phase begins in April 2027.

The change moves tax on certain benefits from an annual P11D exercise into the payroll cycle. With a two-stage timetable and a voluntary route available first, employers have a manageable window to prepare. Agents who use that window will help clients avoid last-minute pressure and give employees a clearer picture of how their pay and tax will work from 2027 onwards.