As HMRC moves towards mandatory payrolling of benefits in kind, UK employers need to start preparing for the changes coming into effect from April 2027. The new rules will gradually change how employers report employee benefits and manage the tax due on them.
From 6 April 2027, employers will be required to payroll certain benefits, including company cars, fuel and medical benefits. At the same time, employers will have the option to payroll other taxable benefits voluntarily, provided they register them with HMRC before the start of the tax year.
Understanding these changes early can help employers plan their payroll processes, avoid reporting mistakes and make the transition easier for their payroll and accounting teams.
This article covers the key changes to voluntary payrolling in 2027/28, the benefits employers can include, HMRC registration requirements and the further changes expected from April 2028.
What Is Payrolling Benefits in Kind?
Payrolling benefits in kind means including the taxable value of certain non-cash employee benefits in the payroll process. Instead of relying entirely on year-end reporting, employers account for the relevant tax through their employees’ PAYE tax codes and payroll calculations.
Benefits in kind are benefits employees receive from their employer in addition to their regular salary. Depending on the type of benefit and the applicable tax rules, these may create an income tax liability for the employee and National Insurance obligations for the employer.
Common examples include company cars, private medical insurance, employment-related loans and employer-provided accommodation.
Traditionally, employers have reported many benefits in kind to HMRC after the end of the tax year using form P11D. Under the new arrangements, more benefits will be processed through payroll, reducing the need for separate year-end reporting for benefits covered by the payrolling rules.
Which Benefits Must Be Payrolled from April 2027?
Starting from 6 April 2027, payrolling will become mandatory for the following employee benefits:
- Company cars
- Car fuel
- Vans
- Van fuel
- Medical benefits
This means employers will need to ensure that the taxable value of these benefits is properly accounted for through payroll under the applicable rules.
For businesses that provide these benefits to employees, preparation should begin well before April 2027. Payroll teams may need to review employee benefit records, confirm the relevant taxable values, update payroll software and make sure the necessary information is available for accurate calculations.
Employers should also communicate with employees about how the changes may affect their payslips and PAYE deductions.
Which Benefits Can Be Payrolled Voluntarily in 2027/28?
During the 2027/28 tax year, employers will be able to choose to payroll other eligible taxable benefits voluntarily, rather than continuing to report them through the usual year-end P11D process.
These include benefits that are not yet subject to mandatory payrolling, such as:
- Taxable cheap employment-related loans
- Living accommodation benefits
- Other eligible taxable benefits not included in the mandatory payrolling requirements for 2027/28
However, there is an important condition: employers must register the benefits they wish to payroll voluntarily with HMRC before the start of the 2027/28 tax year.
This means employers should not wait until April 2027 to decide which additional benefits they want to include in payroll. They will need to plan ahead and complete the registration process within the required timeframe.
Voluntary payrolling can help businesses move towards a more consistent approach to employee benefits reporting. However, employers should first assess whether their payroll systems, internal processes and available employee benefit information are ready for the change.
HMRC’s New Registration Service for Payrolling Benefits
HMRC’s previous service for registering benefits in kind for payrolling has closed. A replacement service is expected to launch in November 2026.
From the launch of the new service, employers will be able to register eligible benefits for voluntary payrolling from 6 April 2027.
This is an important step for businesses planning to include additional benefits in their payroll during the 2027/28 tax year.
Employers should monitor HMRC’s guidance and make sure they understand the registration requirements before submitting their choices. They should also check that the benefits selected for voluntary payrolling are correctly recorded and can be processed through their payroll software.
Registering on time is particularly important because employers will not be able to treat unregistered, non-mandatory benefits as voluntarily payrolled under these arrangements.
What Happens If an Employer Does Not Register?
If an employer does not register a non-mandatory benefit for voluntary payrolling for 2027/28, the employer will generally continue to report that benefit to HMRC after the end of the tax year using form P11D, in accordance with the applicable reporting requirements.
For example, a business that provides a taxable employment-related loan or living accommodation benefit may choose to continue with the existing reporting approach for 2027/28 rather than payroll that benefit voluntarily.
This does not remove the employer’s responsibility to report taxable benefits correctly. It simply means the benefit will continue to be reported through the applicable year-end process instead of being included in payroll under the voluntary arrangements.
Employers should therefore review their benefits arrangements and decide which approach is most suitable for their business.
How Employers Can Prepare for Voluntary Payrolling in 2027/28
Although the changes are not due to take effect until April 2027, preparation can begin now. Taking a few practical steps can help employers avoid unnecessary pressure as the new tax year approaches.
1. Review employee benefits
Prepare a list of all benefits provided to employees, including company vehicles, medical benefits, employment-related loans and accommodation. Identify which benefits will become mandatory to payroll and which may be eligible for voluntary payrolling.
2. Review payroll software
Check whether your payroll software can handle the relevant benefits and their taxable values. Speak to your payroll provider if any updates or changes to your processes may be required.
3. Understand the registration deadline
The new HMRC registration service is expected to launch in November 2026. Employers wishing to payroll non-mandatory benefits voluntarily in 2027/28 must register those benefits before the tax year starts on 6 April 2027.
4. Check employee records
Ensure that the information used to calculate the taxable value of employee benefits is complete and accurate. Outdated or incomplete records can lead to incorrect payroll calculations and reporting issues.
5. Inform employees
Explain how the transition may affect PAYE deductions and payslips. Clear communication can help employees understand why their tax deductions may change when benefits are processed through payroll.
6. Seek professional payroll advice
If your business provides several types of employee benefits, consider speaking to a payroll specialist or tax accountant. They can help you review your arrangements, understand the reporting requirements and prepare for the new rules.
What Will Change in 2028/29?
The next stage of the reforms will begin on 6 April 2028. From this date, all remaining eligible benefits will be brought within mandatory payrolling, with two key exceptions:
- Taxable cheap employment-related loans
- Living accommodation benefits
These two categories will remain eligible for voluntary payrolling rather than becoming mandatory under the planned arrangements. Employers will be able to payroll them voluntarily if they have registered them with HMRC through the new service.
For most other benefits, employers should prepare for payrolling to become the standard reporting approach. Businesses that begin reviewing their systems and procedures during 2026/27 will have more time to prepare for the later changes.
Employers should continue to monitor HMRC guidance, as detailed procedures and requirements may be updated before the relevant dates.
Frequently Asked Questions
1. When does mandatory payrolling of benefits begin?
Mandatory payrolling is being introduced in stages. From 6 April 2027, it will cover company cars, car fuel, vans, van fuel and medical benefits. Further eligible benefits will become mandatory from 6 April 2028, subject to the stated exceptions.
2. Can employers voluntarily payroll benefits in 2027/28?
Yes. Employers can voluntarily payroll eligible non-mandatory benefits during 2027/28, provided they register those benefits with HMRC before the start of the tax year.
3. When will the new HMRC registration service launch?
The replacement registration service is expected to launch in November 2026. Employers will be able to use it to register eligible benefits for voluntary payrolling from 6 April 2027.
4. What happens if a benefit is not registered for voluntary payrolling?
The employer will generally continue to report the non-mandatory benefit to HMRC after the end of the tax year using form P11D, in line with the applicable requirements.
5. Which benefits can remain voluntarily payrolled in 2028/29?
Taxable cheap employment-related loans and living accommodation benefits will remain outside the mandatory payrolling requirements under the planned arrangements. Employers can choose to payroll these benefits voluntarily if they have registered them with HMRC.
Final Thoughts
The introduction of mandatory payrolling is an important change for UK employers, payroll teams and accounting professionals. While the first stage begins in April 2027, the preparation process should start well in advance.
Employers should review their employee benefits, assess their payroll software, understand the new registration process and decide whether voluntary payrolling is suitable for their business.
Taking action early can make the transition more manageable and help businesses maintain accurate payroll and benefits reporting as the rules change.
Need help preparing your payroll for the upcoming changes? Speak to an experienced accountant or payroll specialist to review your employee benefits and plan for the new requirements.
Disclaimer: This article provides general information based on the announced payrolling timetable. Employers should check the latest HMRC guidance before making payroll or reporting decisions.