Time to plan for mandatory payrolling

Employers are facing a significant change in how Benefits in Kind (BIKs) are taxed, although HMRC has now confirmed mandatory payrolling will be introduced in phases.

From 6 April 2027, mandatory payrolling will apply to company cars, car fuel, vans, van fuel and private medical benefits. Most other benefits will remain under the P11D regime until April 2028.

At first glance, the phased approach may appear to give employers more time to prepare. However, for many businesses, very little has changed. Company vehicles and private medical insurance are among the most common Benefits in Kind, meaning April 2027 remains the key deadline for many employers.

For organisations that provide additional benefits, the phased approach could increase administration. Running payroll for some benefits while continuing to prepare P11Ds for others means operating two reporting systems at the same time. Many employers may find it simpler to voluntarily payroll the remaining benefits, where possible, rather than manage both processes side by side.

Payrolling allows benefits to be taxed in real time through PAYE rather than retrospectively. This helps employees pay the correct tax as they receive the benefit, improving transparency, reducing unexpected tax bills and helping HMRC collect tax more accurately.

Preparing for the change involves more than updating payroll. Employers should review the benefits they provide, ensure accurate valuations, update payroll processes and communicate clearly with employees before the new rules take effect.

At Pierce, we support businesses throughout the transition to mandatory payrolling. Although the timetable has changed, the message remains the same: if you provide company vehicles or private medical insurance, now is the time to prepare.