Cybill Watkins, Product Legislation Manager at Zellis, shares her perspective in the article below, offering insight into the issues, developments and considerations shaping the conversation.
Mandatory payrolling of benefits in kind remains one of the most significant payroll changes facing UK employers, with HMRC continuing to refine both the implementation timetable and the scope of what will be included. For employers, this is an operational change as much as a legislative one, with implications for payroll processes, employee communications, data quality and financial planning. With HMRC now confirming a phased approach, organisations should focus on understanding the latest position, assessing the likely impact and taking practical steps to prepare.
The latest update from HMRC
On 15 June 2026, HMRC announced a significant change to the introduction of mandatory payrolling of benefits. In its announcement, HMRC said that mandatory real-time reporting of benefits, including reporting and paying Income Tax and Class 1A National Insurance contributions for certain benefits in kind and taxable expenses will now be introduced in phases, with phase 1 beginning on 6 April 2027 and phase 2 beginning on 6 April 2028, in order to support a smoother transition for businesses.
Under phase 1, mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits, while phase 2 will apply to the remaining benefits previously listed. Loans and accommodation will remain out of scope for the time being. HMRC has also said it will continue working with stakeholders on outstanding issues and has indicated that voluntary Class 1A reporting may be introduced for non-mandated benefits. We are waiting for conformation if the voluntary reporting of loans and accommodation is also being pushed back – this was due to come in from November 2026.
At the time of writing, the guidance published alongside the announcement contains limited detail beyond the initial statement. HMRC has, however, said that its interim guidance will be updated with further technical content by July 2026, with final guidance for phase 1 expected alongside Autumn Budget 2026.
What should employers do now?
Although further technical guidance is still to come, the latest announcement gives employers a clearer direction of travel and more certainty around the immediate scope of change. The additional time created by phased implementation will be welcome, although it should still be used proactively, particularly by organisations that are not yet voluntarily payrolling benefits or that will need to manage a mixed position during the transition.
Key steps for employers now include the following:
- Review HMRC guidance regularly
This remains an evolving area, so employers should continue to monitor HMRC’s published guidance closely and review new information as soon as it is released. This will be especially important as further technical detail emerges over the coming months.
- Decide on your implementation approach
If you are not already voluntarily payrolling all benefits, and you have benefits that will fall into phase 2, you will need to decide whether to adopt a phased implementation approach or move to full payrolling for all benefits except loans and accommodation, which remain out of scope at this stage.
- Plan for tax code changes from April 2027
If you are not already payrolling benefits, HMRC will remove the phase 1 items from employees’ tax codes from April 2027, which means those benefits will need to be payrolled from that point. If you also intend to payroll other benefits voluntarily, registration will still need to be completed by the end of 5th April 2027.
- Prepare employee communications
Employers should think carefully about how the change will be explained to employees, particularly where some benefits are to be payrolled while others continue to be reported on a P11D. Clear and timely communication will be important in helping employees understand what is changing and how it may affect them.
- Engage finance teams early
This change may affect forecasting and cashflow, so finance teams should be involved in planning at an early stage. A coordinated approach between payroll, finance and reward teams is likely to support a smoother transition.
- Review your P11D process
Payroll teams should also review how P11Ds will be managed while phase 2 benefits remain outside mandatory payrolling. For many employers, this may mean operating parallel reporting approaches for a period of time.
A reminder of the April 2025 update
This latest announcement follows an earlier change confirmed in April 2025, when the Exchequer Secretary to the Treasury stated that mandatory payrolling of benefits in kind, including the mandatory reporting and payment of Class 1A National Insurance contributions, would be moved to 6 April 2027.
At that stage, employers already payrolling benefits voluntarily saw no immediate change, while those that had not yet started needed to decide whether to register voluntarily by 5 April 2026 or wait until mandation. HMRC also confirmed at that point that loans and accommodation would remain voluntary from 2027, with voluntary registration for this service opening from November 2026. A technical note was also issued, providing further detail for payroll professionals preparing for the change.
Why mandatory payrolling matters
Mandatory payrolling of benefits in kind represents a significant shift away from traditional year-end reporting. Under the new approach, employers will report benefits available and collect Income Tax and Class 1A National Insurance contributions on benefits through payroll software in real time, reducing reliance on year-end submissions to HMRC.
Although payrolling benefits has been available on a voluntary basis since 2016, the move towards mandation has increased the need for employers to assess their readiness well in advance, particularly in areas such as data quality, payroll system capability, employee communication and process alignment. These considerations remain central, even with the implementation now moving forward in phases.
How Zellis can help
As the policy continues to develop, employers should use this period to review their current position and begin planning for the changes ahead. Zellis works with employers to help them navigate payroll change with greater confidence, from understanding legislative developments through to preparing systems, processes and communications for implementation.
Already a Zellis customer? Speak your Zellis key contact or Customer Success Manager to help you understand what this means for your payroll.
Not yet a customer? Get in touch to see how our payroll experts can support your transition.
