As mentioned in our previous article on payrolling benefits in kind, the existing voluntary scheme is being replaced by a mandatory system from April 2027, a year later than the original planned start date.

Instead of all benefits being included from April 2027, HMRC have now confirmed that  mandatory payrolling will be phased in over a few years. Mandatory payrolling will now only be required from April 2027 for company cars and fuel, vans and van fuel, private medical insurance and other employer provided medical benefits. These are believed to be the most common benefits provided by employers in the UK. Most other remaining benefits will then be brought in from April 2028 (see below).

The phased implementation will also see fewer data fields to be completed by employers, with only 32 data fields now being required for Real Time Information (RTI) submissions instead of the original 126 data fields. Of the 32 data fields, 14 are already used to report company car benefit under RTI.

Why the phased approach was needed

While payrolling benefits offers the advantage of collecting tax on benefits in kind in real time, there are still issues to be resolved with HMRC’s RTI technical specifications. In addition, many employers were finding it difficult to obtain information from benefit providers to make real time reporting of all benefits possible from April 2027. 

It was also feared that pushing ahead with the April 2027 implementation date for all benefits could have resulted in an increased level of RTI submissions being rejected. As rejections affect an employer’s whole payroll, in a worst case scenario this could also affect an employee's entitlement to Universal Credit, even if the error in the submission did not relate to that employee.

What will happen to the remaining benefits in kind?

Mandatory payrolling of the remaining benefits in kind (with the exception of loans and living accommodation) will start from April 2028. Loans and living accommodation will be added at a later date, which is still to be announced.

Although employers do not have to payroll these benefits at this stage, they can choose to do so voluntarily if they wish. If an employer does payroll a benefit voluntarily, the level of detail they need to submit may be less than it might be for a particular benefit in future. This is because HMRC will finalise the more detailed RTI technical specifications after consulting with the software industry and other stakeholders.

A more relaxed approach to penalties

To help employers manage the move to mandatory payrolling, HMRC have confirmed a more relaxed approach to penalties will apply as mandatory payrolling is being phased in over the coming years. This means that employers should not be penalised if they make a mistake as they change their internal systems. However, employers must still make sure that RTI submissions and any PAYE and National Insurance payments are made on time.

Other details still to come

HMRC are expected to update their mandatory payrolling of benefits in kind guidance in the coming months, taking account of feedback from employers, payroll agents and software providers. This will include the mechanics of the reporting and payment of Class 1A National Insurance contributions for benefits being payrolled.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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