Payroll benefits have changed again: What this means for employees and employers

Before the announcement of the rule change on payrolling benefits in June, it was predicted that all but two benefits in kind would need to be processed through payroll from April 2027. This meant any employee receiving a benefit in kind, usually reported via a P11D form post tax year end, would need to have all of these benefits reported via the payroll each pay period. It would be mandatory, regardless of whether the payroll was weekly, fortnightly or monthly.

The latest update from HMRC has changed this, phasing in the change for different benefits being announced, reducing the burden on employers, employees, payroll providers and teams, software providers and also, potentially, the benefits providers.

If you are an employee who receives or an employer who provides the following benefits in kind (BIK) you will still have these payrolled from April 2027 in phase 1:

• Company cars or company car fuel
• Company vans or company van fuel
• Private medical insurance

Any other benefits provided, apart from loans and accommodation benefits, will fall under Phase 2, which will most likely begin in April 2028. Loans and accommodation benefits are likely to be mandated later, but this is still to be confirmed.

While employers have been able to payroll benefits for some time now, it was announced that this would be mandatory (for all but two benefits) from the 2026/2027 tax year. In April 2025, this was delayed with the new deadline of April 2027, for the 2027/2028 tax year.

In November 2025, when the guidance was issued, it was apparent there would be further guidance in the summer of 2026. The Chartered Institute of Payroll Professionals (CIPP) details the original timeline.

Part of the challenge of payrolling benefits, and possibly the reason for the delays, is related to the mandatory reporting requirements via the payroll’s Full Payment Submission (FPS). Whenever staff are paid, an FPS is sent to HMRC to confirm the details. The payrolling benefits fields currently require more reporting fields to allow the information captured on a P11D to be processed and reported through the payroll. It is estimated HMRC will require over one hundred reporting fields.

Phasing the change gives software providers more time to get this into place.

Complaints are likely to persist about “double taxation” or “double bubble” tax in the first year of payrolling. This, however, is inaccurate. The tax paid through payroll relates to the tax owing for the benefit currently received, while there may still be a requirement to pay the previous tax year’s benefit reported via a P11D.

This will definitely affect the tax codes of all employees who are payrolled for the first time, whichever tax year they are payrolled. As stated, it will be important to get communications around this right.

If an employer wants to continue voluntarily with payrolling benefits that would come into phase 2, they can still do so. The same rules apply as to current registration, and they would need to be filed and submitted by the final day of the tax year on 5 April 2027, to go live in April 2027.