Employers have been given more time to prepare for major changes to the way employee benefits are taxed, after HMRC confirmed that mandatory payrolling of benefits in kind will be introduced gradually.
The Association of Taxation Technicians (ATT) has welcomed the decision, saying a phased rollout will give employers, payroll software providers and HMRC more time to adapt to a significant shift in payroll reporting.
Benefits in kind include non-cash perks provided to employees, such as company cars, private medical insurance and other workplace benefits. At present, most employers report these once a year using a P11D form, with tax usually collected through adjustments to employees’ tax codes.
That system can sometimes lead to delays, inaccuracies or unexpected tax bills after the end of the tax year.
Under payrolling, the value of benefits is processed through payroll in real time, allowing tax to be deducted each month alongside salary. In principle, this should make the system more accurate and transparent for employees.
However, the change also creates practical challenges. Employers will need to collect detailed benefits information earlier, ensure payroll systems can process it correctly and work closely with software providers to avoid errors.
HMRC had originally planned to introduce mandatory payrolling for all benefits, alongside more detailed reporting requirements, from April 2027. It has now confirmed that the changes will be phased in instead.
Jon Stride, Chair of the ATT’s Technical Steering Group, described the move as sensible and welcome. He said real-time taxation of benefits should improve accuracy over time, but warned that full implementation in one step would have been overly ambitious.
For employers, the message remains clear: the delay does not remove the need to prepare. Payrolling benefits will still represent a major change to payroll processes, employee communications and year-end reporting.
The phased approach should reduce the risk of disruption, but businesses will need to use the extra time carefully to review their systems, processes and benefit data before the new regime takes full effect.
