An introduction to payrolling benefits
Less than 6 months remain until mandatory changes to how employers must provide taxable benefits in payroll take effect.
We thought you might welcome a simple overview of the upcoming changes and what company car and salary sacrifice providers should do to help their customers prepare.
What is payrolling?
Payrolling benefits in kind (BiKs) involves processing income tax and Class 1A National Insurance Contributions (NIC) on employee benefits through payroll each month.
Rather than adjusting an employee’s tax code, an employer must add the cash equivalent of the benefit to taxable pay each period, so the correct taxes are collected in real time — and reflected on the payslip.
From April 2027 the calculation and reporting of income tax and employer NIC on some benefits in kind must be undertaken in real-time via payroll, and over time, forms P46 (Car), P11D and P11D(b) should no longer be required.
Payrolling gives employees more visibility of the taxation of their benefits. HMRC suggests it will save employers time and admin effort, especially following the end of the tax year, but changes to payroll reporting processes should be borne in mind when planning workloads.
Payrolling: What’s changing, and when?
Following feedback from various stakeholders, HMRC confirmed in June 2026 that mandatory payrolling will be introduced in phases rather than mandating everything at once, which could overload payroll or finance departments.
Here’s the rollout plan:
Phase 1: From 6 April 2027: Payrolling becomes mandatory for company cars, car fuel, vans, van fuel, and employer-provided medical (and dental) benefits.
The income tax and Class 1A NIC on these benefits must be reported and paid in real time via payroll.
These benefits should no longer be reported on forms P11D and P11D(b), and form P46 (car) will no longer be required for company cars.
Phase 2: From 6 April 2028: Most remaining benefits, such as gym memberships, non-cash vouchers and mobile phones must be payrolled.
Loans and accommodation: Interest-free or low-interest loans, and employer-provided living accommodation will remain outside the mandatory regime for the foreseeable future; voluntary payrolling is available, but submission of forms P11D will still be accepted by HMRC because calculation of the cash equivalent of these benefits remains difficult.
Employers will still need to file forms P11D and P11D(b) for 2026/27, and for any benefits that aren’t yet in scope during 2027/28, and for which voluntary payrolling has not been requested.
The change to mandatory payrolling is automatic; employers don’t need to register with HMRC as is currently the case for voluntary payrolling.
What should customers be told?
Customers should already be aware of the upcoming changes, but a brief update informing them of what the changes are and how they’ll impact their company car or salary sacrifice scheme should still be welcome
What BCF Wessex will do, and when.
We’ll produce a short factsheet later this year with key information that can be used to help field any queries on payrolling from customers.
For salary sacrifice clients, we’ll prepare updated FAQs and payroll guides in readiness for the start of the new tax year.
We’ll publish further updates on the details of payrolling of benefits as they become available from HMRC to better aid our clients in advising their customers.
If you’d like to discuss how the changes might affect your business, or your clients, please contact us for further information.
