Benefits in Kind Must Move to Payroll: HMRC's Phased Rollout Begins April 2027

From 6 April 2027, employers must report benefits in kind through real-time PAYE rather than on form P11D, with a phased introduction and early voluntary adoption available from November 2026.

From 6 April 2027, employers will face a seismic shift in how they report employee benefits.

Mandatory payrolling of benefits in kind (BiKs) will begin from 6 April 2027, with a phased introduction designed to give employers and payroll providers time to adapt. For the first time, certain benefits will no longer be reported on form P11D after year-end; instead, they must flow through real-time PAYE.

This two-phase transition marks a fundamental change to the interaction between employment income reporting and the payroll system. Accountants advising clients with employee benefit schemes need to begin preparations now.

What Changes in Phase One (2027/28)

Under the first phase, covering the 2027/28 tax year, mandatory payrolling will apply to certain benefits. These benefits will need to be reported through payroll in real time rather than being reported after the end of the tax year on form P11D. The specific benefits falling within Phase One have not yet been fully itemised in HMRC's published guidance, making early liaison with your compliance contacts essential.

The practical effect is immediate: employers will lose the flexibility to defer reporting these benefits until the P11D return in the summer following the tax year. Instead, values must be calculated, recorded in real time through payroll software, and reported to HMRC electronically as they arise. This creates operational challenges for payroll teams currently relying on manual year-end P11D completion or spreadsheet-based benefit tracking.

Phase Two Expands the Net

Mandatory payrolling will then be extended to most other benefits and expenses from April 2028. From that date, benefits such as living accommodation, beneficial loans, and other historically P11D-based items will move into the payroll system. The cumulative effect will eventually make form P11D near-obsolete for most employers—a watershed moment for payroll compliance.

Voluntary Adoption Opens Early

Recognising that a phased approach may disadvantage early movers, HMRC has confirmed that employers will be able to register voluntarily from November 2026 to payroll other benefits not included in the first phase, such as beneficial loans and living accommodation. This window is significant: employers seeking a cleaner, unified payroll approach can migrate early without waiting for mandatory deadlines. Those making equity awards, providing company cars, or funding employee relocation may benefit from early registration to streamline reporting.

Implications for Practice

The transition imposes several compliance and advisory burdens. First, employers must audit their current benefit schemes to categorise them by phase. Second, payroll software must be upgraded or replaced—not all current systems can handle complex benefit calculations in real time. Third, the interface between HR, payroll, and accounting teams requires redesign to ensure timely, accurate benefit valuations.

For accountants, this creates both risk and opportunity. Clients relying on you to manage P11D compliance will need guidance on system investment, phase-by-phase transition planning, and voluntary early adoption decisions. Those with large benefit schemes—particularly multinationals with share plans, relocation allowances, or mixed car fleets—face complexity that will drive demand for specialist advice.

Planning Window Closing

The practical lead time before April 2027 is now just six months. Employers have already burned through 2026 without knowing which benefits will be in Phase One. HMRC guidance will crystallise further details, but accountants should begin client conversations now about payroll software readiness and scheme audit. Delaying to autumn 2026 risks insufficient time to test new systems before 6 April.

Making Tax Digital (MTD) for Income Tax became mandatory from 6 April 2026 for sole traders and landlords with combined gross income from self-employment and property exceeding £50,000. From April 2027, it will apply to those with qualifying income above £30,000. From April 2028, it will apply to those with qualifying income above £20,000. The concurrency of MTD widening and mandatory BiK payrolling from April 2027 will create a busy compliance window. Advisers managing clients across multiple tax and payroll obligations should flag this cluster and plan accordingly.

This is an AI-assisted summary; readers should verify all figures and deadlines against HMRC's published guidance and the formal notification from GOV.UK.