HMRC’s September update on payrolling benefits in kind changes

If you’re looking for answers to common questions about payrolling benefits in kind, please see our payrolling benefits in kind FAQs.

In September 2026, HMRC released its latest update, providing further detail on the upcoming payrolling changes. This included an updated timetable, exclusions from mandatory payrolling and further information on how Class 1A National Insurance contributions will be reported. This article provides an overview of the changes communicated so far, including these latest developments.

HMRC’s current payrolling timetable

HMRC have confirmed that mandatory payrolling of benefits in kind will be introduced in phases, rather than applying to all benefits from 6 April 2027, as previously announced.

From 6 April 2027, mandatory payrolling will apply to:

Company cars and car fuel
Vans and van fuel
Private medical insurance and other employer-provided medical benefits

These are expected to account for around 92% of the benefits currently reported via the P11D process.

The second phase is currently scheduled for 6 April 2028 and is expected to bring most other benefits within mandatory payrolling. Beneficial loans and employer-provided accommodation will remain outside mandatory payrolling and can continue to be payrolled voluntarily, subject to the relevant registration requirements.

An exception – globally mobile employees

HMRC has confirmed that employers will be able to exclude certain globally mobile employees from mandatory payrolling of their benefits in kind.

A new HMRC service is expected to be available from November 2026 to allow employers to exclude eligible globally mobile employees from mandatory payrolling. Otherwise, those employees will remain within the mandatory regime. Where the exclusion applies, employers will generally continue to use the existing year-end reporting process through forms P11D and P11D(b).

The announcement will be welcomed by employers with international workforces, as globally mobile employees can present practical difficulties when determining and reporting taxable benefits in real time.

Payment of Class 1A National Insurance

From 6 April 2027, employers must report and pay the associated Class 1A National Insurance contributions due on payrolled benefits in real time. Employers will not be able to payroll the Income Tax while reporting the associated Class 1A National Insurance separately at the end of the tax year.

Importantly, where an employer chooses to voluntarily payroll a benefit that is not mandated during the first phase, the associated Class 1A National Insurance will also need to be reported through payroll in real time.

Voluntary payrolling benefits in kind

Although certain benefits in kind will become subject to mandatory payrolling from April 2027, employers can register to voluntarily payroll non-mandated benefits, including beneficial loans and employer-provided accommodation.

HMRC’s registration service is expected to open from November 2026. Employers wishing to voluntarily payroll benefits from the 2027/28 tax year will need to register before the start of that tax year, by 5 April 2027.

While it might be tempting to delay, we recommend registering as soon as possible to give employers time to:

Embed any changes smoothly
Test systems
Avoid the pressures of last-minute compliance

Expanded scope of payrolling benefits in kind: What benefits must be payrolled

Employers should get ready for a wider range of items to be payrolled alongside updated reporting rules.

Taxable employment expenses

Mileage payments above HMRC’s approved rates, and other taxable employment expenses, must be reported through payroll. These entries flow through employers’ regular real time information submissions alongside benefit reporting.

Voluntary payrolling exceptions

Employer-provided accommodation and beneficial loans are planned to remain outside mandatory payrolling following the second phase in April 2028. Employers can choose to payroll these items voluntarily, subject to registration. HMRC will keep their treatment under review.

Third-party benefits and reward schemes

Complex benefits delivered through external vendors or tax-award schemes remain under review.

50% regulatory limit

As payrolling benefits in kind becomes mandatory from April 2027, employers will be required to carry forward amounts into future pay periods for that tax year where the 50% regulatory limit prevents the full amount of tax being deducted. Any tax that remains uncollected at the end of the year will be dealt with by HMRC through the relevant end-of-year reconciliation process, simple assessment or self assessment, as appropriate.

Employees and directors who receive no income

Where an employee or director receives no income from their employment or directorship, the employer will still be required to report the benefits in kind and expenses provided using an FPS and account for the Class 1A National Insurance due. The FPS will show no earnings or tax deducted where none has been paid. Any tax that cannot be collected through payroll will be dealt with through the relevant HMRC reconciliation process.

Operational changes in payrolling benefits in kind

Real-time Class 1A National Insurance

Class 1A National Insurance on payrolled benefits will move into real-time payroll reporting rather than being dealt with solely through the year-end process.

Benefit valuation rules

Employers will generally use the annual cash equivalent of the benefit, including VAT where relevant, and apportion it across the appropriate pay periods. If the value changes during the year, the remaining amounts will need to be recalculated. Where the value is not known at the start of the year, employers can use a reasonable estimate and update the position when better information becomes available.

Using estimates and year-end updates

HMRC has confirmed that there will be an update process where the Income Tax and Class 1A National Insurance position could not be determined during the year. Where this process is used, benefits in kind must be reported by 6 July following the end of the tax year. Any additional Class 1A National Insurance due will be payable by 22 July following the end of the tax year.

New data fields

HMRC has reduced the number of additional real-time information fields employers will be required to submit via payroll from 126 to 32. Employers should still work with their software providers to make sure the required fields and processes are ready ahead of 6 April 2027.

Communicating payrolled benefits in kind to employees

Employee notification

Employers should clearly tell employees which benefits are being payrolled and explain the effect on tax deductions and net pay. Employers should also consider how employees will receive the information they need about their benefits.

Registration requirements

From April 2027, benefits within the mandatory regime will be covered automatically and will not require voluntary registration. Employers choosing to payroll non-mandated benefits will still need to register those benefits where required.

Penalties and compliance

HMRC has indicated that a more relaxed approach to penalties will apply during the transition period as employers adapt to the new reporting requirements. Standard late-filing and late-payment rules will continue to be relevant, so employers should still focus on getting their processes and payments right from the outset.

What’s next for payrolling of benefits in kind?

With mandatory payrolling beginning from April 2027, employers now have a valuable window to prepare, test and refine their approach. HMRC continues to develop the supporting guidance and technical specifications, so employers should keep developments under review as they prepare for implementation.

Action steps for employers, agents and software providers

Review payroll systems: assess whether the current setup can handle real-time Class 1A National Insurance and expanded benefit reporting.
Update payroll software: work with your provider to ensure your system is ready for the new reporting requirements and benefit valuation processes.
Draft clear employee communications: prepare messaging to explain how payrolling will affect employees, including the effect on tax deductions and net pay.
Prepare for phased implementation: review which benefits currently provided by your organisation will fall within phase one from April 2027 and phase two from April 2028, and consider whether any globally mobile employees may qualify for exclusion from mandatory payrolling.

Get in touch today to make sure you’re ready for what’s coming, or read more on our Payrolling Benefits in Kind page.