Mandatory payrolling of benefits in kind from April 2027

Mandatory payrolling of most benefits in kind is expected to start from April 2027. That means employers will report most taxable benefits and expenses through payroll in real time, rather than relying on the traditional year-end P11D process.

GOV.UK’s interim guidance on mandatory payrolling explains that the reform is intended to move benefits reporting away from a retrospective annual system and into Real Time Information.

The important update is the timing. The change was originally expected from April 2026, but GOV.UK’s preparation guidance now confirms the mandatory start date has moved to April 2027.

Merranti’s mandatory payrolling delay article is a useful starting point if you previously planned around the April 2026 date.

What is payrolling benefits in kind?

Payrolling benefits means the taxable value of a benefit is processed through payroll during the tax year. Instead of the employee receiving a tax code adjustment later, the benefit is taxed through PAYE as it is provided.

GOV.UK’s guide to payrolling employees’ taxable benefits and expenses explains how voluntary payrolling currently works for employers that registered before the relevant deadline.

For employers, this means payroll data will need to be more accurate during the year. For employees, it should reduce the delay between receiving a benefit and paying tax on it.

Merranti’s benefits-in-kind guide explains why benefits such as company cars, private medical cover and beneficial loans can create employee tax charges and employer Class 1A National Insurance.

What changes from April 2027?

From April 2027, most benefits in kind and taxable expenses are expected to be reported through Real Time Information using the Full Payment Submission.

GOV.UK’s reporting requirements guidance says the FPS will be used to report taxable values of benefits and expenses so that Income Tax and Class 1A National Insurance can be reported in real time.

GOV.UK’s default operation guidance says most benefits and taxable expenses will need to be reported through RTI from April 2027.

This is a significant process change. Employers will need payroll software, payroll data, benefit values and employee communications to work properly during the year, not only after 5 April.

Merranti’s older article on mandatory payrolling from April 2026 is now useful mainly as background. The more current position is covered in Merranti’s 2027 delay update.

What happens in 2026/27?

For the 2026/27 tax year, employers that did not register to payroll benefits by 5 April 2026 must continue using the current P11D process.

GOV.UK’s April 2026 Employer Bulletin says the registration service for payrolling benefits in kind closed for the 2026/27 tax year on 5 April 2026. Employers that were not registered by then must continue reporting benefits using P11Ds and P11D(b) for 2026/27.

That means 2026/27 is a preparation year for many employers. It should be used to review benefits, check payroll software, clean up employee data and make sure benefits can be valued accurately.

Merranti’s payrolling benefits guide for employers is useful background, but employers should be careful because the mandatory start date has now moved to April 2027.

Which benefits are affected?

Most benefits in kind and taxable expenses are expected to move into payroll reporting. Common examples include:

• company cars
• private medical insurance
• gym memberships
• fuel benefits
• living costs paid by the employer
• non-cash employee perks
• some reimbursed expenses
• director benefits

GOV.UK’s expenses and benefits A to Z is useful for checking how specific benefits are currently treated.

Company cars should be reviewed early because the taxable values can be material. GOV.UK’s guide to tax on company cars explains how private use of a company car creates a tax charge. Merranti’s company cars in 2025/26 guide explains why electric vehicles can still be attractive, but need Benefit in Kind planning.

Merranti’s wider guide to company cars, vans and motorbikes is useful if the business provides more than one type of vehicle.

What about accommodation and beneficial loans?

Employment-related loans and accommodation are being treated differently.

GOV.UK’s preparation guidance says employers will be able to payroll employment-related loans and accommodation voluntarily from April 2027, but they will need to register to do so. The registration service for loans and accommodation is expected to open in November 2026, with a registration deadline of 5 April 2027.

This matters for owner-managed companies because overdrawn director loan accounts can create beneficial loan issues. Merranti’s benefits-in-kind guide explains beneficial loan tax charges, and Merranti’s Section 455 director loan guide explains the separate Corporation Tax issue that can arise when a director owes money to the company.

Employers should not assume all benefits will follow the same reporting route immediately.

Class 1A National Insurance

Benefits in kind can create employer Class 1A National Insurance. Under the new system, employers will need processes that deal with both employee tax and employer NIC reporting.

GOV.UK’s reporting requirements guidance says the FPS will report taxable values so that both Income Tax and Class 1A National Insurance can be reported in real time.

This could change employer cash flow. Instead of dealing with Class 1A NIC mainly after the tax year, employers may need to budget for more regular reporting and payment.

Merranti’s PAYE and director salaries guide is useful because directors often need to review salary, benefits, PAYE, National Insurance and dividends together.

Payroll software and data quality

Mandatory payrolling will make payroll software and data quality more important.

GOV.UK’s getting ready guidance says employers should not underestimate the time needed to make payroll processes robust enough for real-time benefit reporting.

Employers should review:

• whether payroll software can handle benefits in kind
• how each benefit is valued
• which employees receive which benefits
• whether benefits change during the year
• whether cars, fuel, loans and medical cover are recorded accurately
• how corrections will be made
• how employees will understand payslip changes

GOV.UK’s PAYE for employers guidance is useful for the wider payroll duties, and Merranti’s director payroll planning guide is relevant for owner-managed companies reviewing payroll before the start of a tax year.

Employee communication

Employees may notice changes in take-home pay once benefits are taxed through payroll. That can create confusion if the employer does not explain the change early.

For example, an employee with private medical insurance may see extra taxable value processed through payroll each pay period. A director with a company car may see the benefit reflected differently from the old P11D/tax code process.

GOV.UK’s payrolling benefits online service guidance explains the current payrolling service and how employees can be excluded from voluntarily payrolled benefits for the current tax year where allowed.

From April 2027, the process will be different because most benefits move into mandatory real-time reporting. Employers should prepare employee communications well before the first affected payslip.

Merranti’s benefits-in-kind guide is useful for explaining why employees may still pay tax on benefits even though the employer provides them.

Common employer mistakes

The first mistake is relying on old April 2026 guidance without checking the updated timetable. The current GOV.UK position is April 2027 for mandatory payrolling of most benefits.

The second mistake is assuming P11Ds disappear immediately. For 2026/27, many employers still need to use P11Ds and P11D(b). GOV.UK’s April 2026 Employer Bulletin confirms that unregistered employers must continue using P11Ds for 2026/27.

The third mistake is ignoring accommodation and beneficial loans. GOV.UK’s getting ready guidance says these will be voluntary from April 2027, with separate registration.

The fourth mistake is not reviewing company cars. Merranti’s company car electric vehicle guide and company vehicles and tax guide can help employers review whether cars remain tax-efficient.

The fifth mistake is treating this as a payroll-only problem. Benefit reporting affects payroll, HR, finance, directors, employee communication and tax planning.

How employers should prepare now

Employers should use 2026/27 to prepare properly.

Useful steps include:

• list all benefits and expenses currently provided
• check which employees and directors receive each benefit
• identify company cars, fuel, medical cover, loans and accommodation
• check whether current P11D records are accurate
• speak to the payroll provider about April 2027 readiness
• review employee communications
• decide how benefit values will be checked during the year
• review director loan accounts before the year-end
• review whether company cars still make sense
• check whether any 2026/27 P11Ds are still required

Merranti’s mandatory payrolling delay update, benefits-in-kind guide, director remuneration guide, PAYE and director salaries guide and company vehicles guide cover the main connected issues.

Speak to Merranti before April 2027

Mandatory payrolling of benefits in kind is not just a software change. It changes when benefits are reported, how employees pay tax, how employers deal with Class 1A National Insurance, and how payroll teams handle benefit data.

Merranti’s mandatory payrolling delay article is a useful starting point, while its guides on benefits in kind, director payroll planning, company cars, director loans and director remuneration explain the main areas employers should review.

If your business provides company cars, private medical cover, director benefits, loans, accommodation or other taxable perks, contact Merranti Accounting before April 2027 so your payroll, records and employee communications are ready.

When does mandatory payrolling of benefits in kind start?
Mandatory payrolling of most benefits in kind and taxable expenses is expected to start from April 2027. GOV.UK explains this in its interim guidance on mandatory payrolling of benefits in kind and expenses.

Was mandatory payrolling delayed from April 2026?
Yes. The start date moved from April 2026 to April 2027. Merranti’s mandatory payrolling delay article explains the change and why employers still need to prepare.

Will P11Ds disappear completely?
Not immediately for everything. GOV.UK’s reporting requirements guidance says most benefits and expenses will be reported through payroll, but special treatment remains for some benefits such as employment-related loans and accommodation.

Can employers still voluntarily payroll benefits?
For 2026/27, GOV.UK says employers can only use the online service if they registered before 6 April 2026. GOV.UK explains this in its guide to payrolling employees’ taxable benefits and expenses.

What benefits should employers review first?
Company cars, private medical insurance, gym memberships, beneficial loans, accommodation, fuel and director benefits should be reviewed early. Merranti’s benefits-in-kind guide explains the common tax charges and deadlines.