Mandatory payrolling of benefits

The deadline requiring employers to report most taxable benefits through payroll software has been postponed by one year to 6 April 2027. As a result, employers can continue using form P11D to report benefits for a further year.

Once mandatory reporting is introduced, all benefits, except for employer-provided accommodation and cheap/interest-free loans, will need to be payrolled. The two exceptions can still be reported using form P11D, although the longer-term intention is that they will also come under payroll provision.

For 2026/27

Payrolling remains voluntary, and employers must register before 6 April 2026 to payroll employees’ benefits for this year. As is currently the case, it will not be possible to payroll accommodation or cheap/interest-free loans.

From 2027/28 onwards

Since payrolling will be mandatory, registration will not be necessary. Therefore:

• Registration will be required if an employer wants to voluntarily payroll accommodation or cheap/interest-free loans.
• The P11D process will remain in place for those employers who provide, but do not payroll, accommodation and cheap/interest-free loans.

An end-of-year process will be available to account for the values of any taxable benefits that cannot accurately be determined during the tax year.

HMRC will automatically remove benefits from employees’ tax codes in readiness for payrolling from 6 April 2027.

Cashflow impact

The move to mandatory payrolling could see employees facing tax deducted for multiple tax years at once. With payrolling, tax is deducted in real-time, but employees could have tax collected through their tax code for benefits received in earlier years.

Should an employee face financial difficulty due to multiple tax deductions, they can request that HMRC spread the underpayment over more than one tax year.

HMRC has published a technical note providing a detailed overview of the changes from 6 April 2027, available here.

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