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This week brought an important update from HMRC on the long-awaited move to mandatory payrolling of Benefits in Kind (BiKs). While many organisations have been preparing for a full rollout from April 2027, new guidance confirms a phased implementation - offering some welcome breathing space, but also new complexities to manage.

Below, we break down what’s changed, what it means in practice, and what payroll and HR teams should be doing next.

A change in direction: Phased introduction from April 2027

HMRC has confirmed that mandatory payrolling will now be introduced in two phases rather than all at once.

Phase 1 - From April 2027

Mandatory payrolling will apply only to a limited set of benefits:

• Company cars and fuel
• Vans and van fuel
• Private medical benefits 

All other benefits will remain outside mandatory payrolling for the time being, continuing to be reported via P11D forms or voluntary payrolling arrangements.

Phase 2 – From April 2028 (and beyond)

Most remaining benefits are expected to become mandatory from April 2028, with loans and accommodation benefits brought in later. 

Why the change?

The shift to a phased approach follows feedback from employers, payroll professionals and software providers. Originally, the move to mandatory payrolling required a significant expansion of reporting data. Under the revised approach:

• Required FPS data fields have been reduced significantly (from over 100 to around 32)
• Software providers are being given more time to adapt systems
• Employers have more time to review processes and data readiness

In short, the government has recognised that this is a major transformation and is allowing more time to get it right.

What this means for employers and payroll teams

While the phased approach gives more time, it still requires action.

• A mixed approach will continue - some benefits will be payrolled, while others remain on P11Ds for now
• Existing payrolling can continue - but processes may still need adjustment to align with new requirements 
• Preparation remains key - systems, data and processes will need to support real-time reporting

The key message is that although timelines have shifted, the direction of travel hasn’t changed - and early preparation will still make a significant difference.

Practical steps you can take now

Although mandation has been phased, organisations should still use the time available to prepare:

• Review your current benefits portfolio - identify which fall into Phase 1
• Assess your payrolling capability - systems, processes, and data
• Map data flows - where benefit information originates and how it reaches payroll
• Engage with software providers early
• Plan employee communications - real-time taxation may impact take-home pay perceptions

Taking proactive steps now will help avoid disruption closer to April 2027.

How we can help

To support organisations through these changes, our dedicated course, 'Mandatory Payrolling of Benefits 2027', will be fully updated once the guidance is released in July.  If you’d like to build your confidence and ensure your team is prepared, this course is a great place to start - view full details and book here >>