Mandatory payrolling of benefits delayed to 2027
The deadline for mandatory payrolling of benefits has been postponed by one year. Employers will now need to report most taxable benefits through payroll software starting 6 April 2027.
In the meantime, employers can continue using form P11D to report benefits for the 2026/27 tax year.
What will change?
When mandatory payrolling is introduced, all benefits, except for employer-provided accommodation and cheap or interest-free loans, must be payrolled.
The two exceptions can still be reported using form P11D, although HMRC intends to eventually include these under the payroll system too.
For the 2026/27 tax year
Payrolling remains voluntary during this period. To payroll employee benefits in 2026/27, employers must register before 6 April 2026.
However, accommodation and cheap/interest-free loans still cannot be payrolled and must continue to be reported on a P11D.
From 2027/28 onwards
Mandatory payrolling of benefits will begin. Key points to note:
- Employers will no longer need to register to payroll standard benefits.
- Registration will still be required to voluntarily payroll accommodation or loans.
- The P11D process will remain in place only for non-payrolled accommodation and loans.
An end-of-year process will be introduced to handle any taxable benefits that cannot be accurately valued during the tax year.
What about tax codes?
From April 2027, HMRC will automatically remove benefits from employees’ tax codes to prepare for payrolling.
Cashflow impact for employees
Payrolling deducts tax in real time, which means employees may face deductions for current and past years if benefits were previously untaxed.
If multiple years’ taxes are collected at once, this could cause cashflow pressure. In such cases, employees can ask HMRC to spread payments over more than one tax year.
For full details, HMRC’s technical note on payrolling from 6 April 2027 is available here.