The UK Payroll Team's Guide to Mandatory Benefits-in-Kind Payrolling from April 2027

The 2025/26 tax year P11D is, for most employers, the final P11D they will ever file for commonly provided benefits. That is not a distant planning problem.

From April 6, 2027, HMRC is mandating payrolling of benefits in kind (BIK), which means income tax and Class 1A National Insurance contributions on those benefits must be reported and paid in real time via payroll, every pay period, not lumped into an annual return.

In this article, you'll learn about the specific operational changes UK payroll teams must make before the April 2027 go-live, including data restructuring, BIK valuation, the Class 1A NIC cash-flow shift, and what the transition means for employees with underpayments in their tax codes.

What mandatory payrolling of BIKs actually means

Under the current system, employers report most taxable benefits annually using P11D forms (one per employee), alongside a P11D(b) summary that triggers the Class 1A NIC bill. HMRC then collects tax on those benefits from employees through adjustments to their PAYE tax codes, meaning employees often pay the tax months after receiving the benefit and frequently discover unexpected adjustments at year end.

From April 2027, that annual cycle is replaced by real-time reporting through the Full Payment Submission (FPS), the same reporting channel employers already use to submit salary and employee details to HMRC at each pay date. The taxable value of benefits is divided across pay periods and included alongside regular salary, so employers collect income tax and Class 1A NICs progressively throughout the year rather than in one annual exercise.

Practically, this means benefits reporting stops being a year-end task and becomes an ongoing payroll responsibility, closer in rhythm to how Class 1 NIC on earnings already works. HMRC will remove the coding adjustment system for BIKs within the mandatory scope ahead of April 6, 2027, so payroll teams cannot rely on tax codes to collect the liability.

Which benefits are in scope and when

HMRC confirmed the phased rollout on June 15, 2026, following feedback from employers, payroll professionals, and software providers.

Phase 1: From April 6, 2027

Mandatory payrolling applies to:

• Company cars
• Car fuel
• Vans
• Van fuel
• Employer-provided medical benefits

Income tax and Class 1A NICs on these five benefit categories must be reported and paid in real time from April 6, 2027. Employers do not need to register with HMRC for this phase. Payrolling of these benefits becomes the automatic default.

Phase 2: From April 6, 2028

Most remaining benefits move into mandatory payrolling, including:

• Gym memberships
• Non-cash vouchers
• Mobile phones outside the exemption
• Most other taxable expenses and benefits not covered in Phase 1

Loans and accommodation stay on P11D for now

Two benefit categories remain outside the mandatory regime and continue to be reportable via P11D:

• Beneficial loans (including director loans and low-interest loans)
• Employer-provided living accommodation

HMRC has said mandatory payrolling for these two categories will be confirmed at a later date, not that they're permanently excluded. Employers can choose to voluntarily payroll these benefits if they register with HMRC by April 5, 2027, but there is no obligation to do so. Because employers typically cannot confirm loan and accommodation values until the end of the tax year, HMRC anticipates that many employers will continue using P11D reporting for them in the meantime.

What this means in practice during the transition

Between April 2027 and April 2028, many employers will run two parallel reporting processes: real-time payrolling for Phase 1 benefits and P11D reporting for everything else. That hybrid position is manageable, but it requires deliberate planning, particularly around which data feeds into which reporting channel.

The Class 1A NIC cash-flow risk

Under the current system, Class 1A NIC is paid as a single lump sum each year: the P11D(b) is filed by July 6, and the NIC payment is due by July 22 (electronically) or July 19 (by post). For 2025/26, the rate is 15% Class 1A rate on the total taxable benefit value. A company with a substantial benefits program can be paying a significant NIC bill in one July payment.

From April 2027, that changes: Class 1A NICs on mandatory-scope benefits are paid monthly through RTI submissions, spread across every pay cycle throughout the year.

The 2027/28 financial year introduces a significant cash-flow forecasting overlap. Many employers will face a double liability:

1. The traditional annual Class 1A NIC bill for 2026/27 benefits (due in July 2027), covering all benefits still on P11D for that tax year
2. Monthly Class 1A NIC payments throughout 2027/28, collected in real time on Phase 1 benefits from April 2027 onward

Finance teams that have not modeled this will discover the overlap as a mid-year working capital shock. The practical recommendation is to include both streams in cash-flow forecasting for FY2027/28 now, not when the first April 2027 payroll run lands.

A second note applies to employees: HMRC will remove Phase 1 BIKs from employee tax codes before April 6, 2027, but underpayments from prior years remain in those codes. This means some employees will see tax collected via payroll on current benefits while their code simultaneously collects a historic underpayment, appearing as though they are being taxed twice on the same benefit. Employers should communicate this clearly before the cutover.

Fixing your BIK valuation data

Most payroll systems can already handle the mechanics of adding a taxable value to an FPS. The harder problem is ensuring the right BIK values arrive at the right time, in the right format, for every affected employee before each payroll run closes.

Under the P11D regime, employers had until July 6 after the tax year ended to gather, reconcile, and submit benefit values. Under mandatory payrolling, the taxable value of a benefit must be available at each pay date throughout the year. That structural shift changes the data relationship between payroll and several third-party providers.

What needs to change upstream

Company car data

Fleet data (CO2 emissions, list prices, private fuel indicators, and engine type adjustments) must be available in payroll before the relevant pay period, not aggregated annually. Fleet management systems and leasing company data feeds typically operate on different reporting cycles, and that integration gap needs to be resolved before April 2027.

Medical benefit values

The taxable value of employer-provided medical insurance is typically based on the annual premium cost. For group schemes with variable membership (joiners, leavers, and dependents being added or removed), the in-year premium changes must flow to payroll in real time. Payroll teams should contact benefit providers and insurers now to confirm what data feeds they can supply and in what format.

Third-party benefit platforms

For employers using a flexible benefits platform or salary-sacrifice arrangement, the third-party platform must either push valuation data to payroll in-period or the payroll system must be able to pull it. The current architecture for many of these integrations was designed around annual P11D reconciliation, not monthly reporting. Testing those data flows ahead of April 2027 is not optional.

Reasonable estimates

HMRC has confirmed that employers may payroll a reasonable estimate where the full benefit value is not yet known in-year, with a year-end correction process available up to July 22 following the tax year end. This provides some flexibility for benefits with variable values, but it requires payroll teams to establish a defensible estimation methodology and document it.

FPS replaces P11D reporting

The Full Payment Submission already sits at the center of every payroll run. From April 2027, HMRC will extend the FPS with new fields to capture BIK data. The number of BIK-specific fields on the FPS will increase to align with what is currently reported on P11D and P11D(b) forms. HMRC plans to set out the detailed scope of benefits in kind and the RTI technical requirements in secondary legislation expected at Budget 2026, giving payroll software providers time to update their platforms ahead of go-live.

For payroll teams, the practical implications are:

• No registration required for Phase 1 benefits. Mandatory payrolling is the default from April 6, 2027
• Benefits within the mandatory scope must be reported at each payroll run, not once per year and not in a separate return
• The P11D(b) will no longer be required for payrolled benefits, but continues to apply for benefits remaining on P11D (loans, accommodation, and during the transition, Phase 2 benefits still in the P11D route)
• RTI penalty rules that apply to late filing and late payment will apply from the first year of mandatory payrolling. HMRC has also indicated that inaccuracy penalties for 2027/28 will not be charged unless there is evidence of deliberate non-compliance

A readiness checklist for UK payroll teams

The following steps represent the minimum preparation required before April 6, 2027, as part of a broader payroll compliance checklist.

By end of Q3 2026

• Produce a complete inventory of all BIKs currently provided to employees and directors
• Classify each benefit against the Phase 1, Phase 2, or not-yet-mandated categories
• Identify which benefits are currently on voluntary payrolling and which are on P11D
• Map every third-party data source (fleet, insurer, flex-benefits platform) and confirm what in-year data feeds are available
• Confirm your payroll software provider's roadmap for supporting the new FPS BIK fields

By end of Q4 2026

• Test data integration between benefit providers and payroll for Phase 1 categories
• Model the Class 1A NIC cash-flow impact for FY2027/28 (including the July 2027 overlap payment) and share projections with finance
• Decide whether to voluntarily payroll Phase 2 benefits from April 2027 (register by April 5, 2027, if so)
• Draft employee communications explaining the change to payslips, tax codes, and the transitional double-deduction scenario
• Register to voluntarily payroll loans and accommodation, if applicable, ahead of the April 5, 2027 deadline

By March 2027

• Run a parallel payroll test using the new FPS BIK fields before the live go-date
• Confirm that benefit valuation data is arriving at payroll before the April 2027 pay period closes
• Issue employee communications at least two pay cycles before April 2027
• Brief HR and reward teams on the ongoing in-year data obligations that now sit with payroll

What P11D reporting looks like after April 2027

The P11D does not disappear entirely. Understanding what stays on the form is as important as understanding what leaves it.

Employers will still need to file P11Ds after April 2027 for:

• Loans and accommodation, which stay on P11D reporting until HMRC confirms a mandatory payrolling date for them
• Phase 2 benefits during 2027/28, if employers do not voluntarily payroll them
• Any employer maintaining P11D reporting in a given tax year must also continue to submit P11D(b)

Employers who assume all P11D obligations end after 2026/27 will remain non-compliant. P11D(b) penalties start automatically from the moment a deadline passes, and there is no warning letter. The P11D(b) penalty rules set the charge at £100 per 50 employees for each month or part month a P11D(b) remains outstanding, capped at 12 months and at the total Class 1A NIC due for the year, with HMRC typically issuing penalty notices roughly every four months (November, March, and July) until the form is received.

Get ready for April 2027 with Deel

Mandatory payrolling of benefits in kind is the most significant structural change to UK employer reporting since HMRC introduced RTI in 2013. The April 2027 deadline requires substantial operational preparation, and the cash-flow implications for 2027/28 are material. Payroll teams that treat this as a compliance checkbox rather than an operational project will find themselves short on time when HMRC removes BIKs from employee tax codes and the first April 2027 FPS must include benefit data.

Deel Local Payroll is built for exactly this kind of regulatory complexity:

• PAYE, NI, and statutory pay is configured once and kept current
• FPS, EPS, and NVR is submitted directly through your RTI dashboard
• Legislative updates are applied automatically
• Automatic workforce assessment, deductions, enrolment letters, and provider reporting
• SMP, SSP, SPP, shared parental, and neonatal care calculated correctly
• P45, P60, P11D, and Apprenticeship Levy reports ready when HMRC needs them
• Process payroll independently with instant gross-to-net calculations
• Generate compliant BACS files directly — or fund the entire pay run straight from your bank account with our Crezco integration
• Payslips, P60s, tax certificates, and leave requests from any device or on WhatsApp
• Certified, bidirectional Workday integration with an automated Change Audit Report for HMRC
• Enter pay rate, currency, and work schedule once in Deel HR — they populate Deel Local Payroll, ready for payroll
• And more

If your team is assessing its readiness for April 2027, speak with Deel about how to manage UK payroll without rebuilding existing processes.

See how Deel handles UK employment compliance and employer National Insurance obligations for broader context on how this mandate fits into the wider 2025-27 UK regulatory environment.