HMRC phases benefits payrolling rollout

HMRC has revised the timetable for mandatory real-time reporting of benefits in kind, giving employers, payroll providers, and advisers more time to manage one of the most significant payroll changes in years.

Updated guidance published on 15 June 2026 confirms that mandatory payrolling of certain benefits in kind and taxable expenses will now be phased in from 6 April 2027, with phase one beginning in April 2027 and phase two following in April 2028.

Under phase one, mandatory payrolling will apply to company cars, car fuel, vans, van fuel, and employer-provided medical benefits. Most other benefits in kind will move into mandatory payrolling under phase two from April 2028, while loans and accommodation will remain voluntary.

The change means employers will not need to move every benefit into real-time reporting at once. HMRC said the phased approach follows engagement with industry experts and feedback from stakeholders, and is intended to support a smoother transition.

Mandatory payrolling changes the timing and mechanics of how taxable benefits are reported and taxed. Instead of relying on annual P11D processes for many benefits, employers will report information through payroll, with tax and Class 1A National Insurance contributions handled in closer to real time.

The revised approach also reduces the technical specification burden. HMRC said it will provide draft data item guidance in the coming weeks, reflecting the removal of 94 real-time information data fields for benefits in kind. Developer specifications will be updated to align with revised data requirements from April 2027.

The Chartered Institute of Payroll Professionals said only 32 data fields are now needed, compared with more than 100 previously required to cover all benefits in kind. All other benefits will continue to be reported on P11D forms or through voluntary payrolling until later phases take effect.

The shift gives payroll teams breathing space, but it does not remove the implementation work. Employers still need to review benefit structures, payroll software, employee communications, data collection, tax-code processes, and the governance of benefits that may move into phase two. Finance, HR, reward, and payroll teams will need a shared view of which benefits are provided, how they are valued, and how data moves through systems.

Payroll is becoming more strategically important as compliance duties multiply. Employment law reform, statutory sick pay changes, pay transparency expectations, pension administration, salary sacrifice schemes, hybrid working benefits, and real-time tax reporting all place more pressure on payroll accuracy. Demand for finance and control skills has already been reflected in stronger hiring activity across UK finance roles.

Smaller employers may feel the change most sharply. Many rely on external accountants, payroll bureaux, or software providers rather than in-house payroll specialists. A phased timetable helps, but it also creates a longer transition period in which old and new reporting methods run together. That increases the risk of misunderstanding unless records, responsibilities, and employee explanations are clear.

Employee communication will require particular care. Payrolling benefits can change how taxable benefits appear through payslips and tax deductions, even when the underlying benefit has not changed. Poor communication can create confusion over apparent changes to pay, tax, or benefits value.

Software readiness remains another dependency. Payroll providers need technical specifications early enough to build, test, and deploy changes before April 2027. Employers with multiple payrolls, international assignees, company car schemes, private medical cover, or complex reward structures may need more detailed testing than those with simpler benefits packages.

The revised timetable should reduce the immediate risk of a disorderly launch, but it confirms the direction of policy. Benefits reporting is being pulled further into payroll infrastructure, and the additional time will be most valuable to employers that use it to clean data, map processes, and test systems before the first mandatory phase begins.