Phased rollout of payrolling for employee benefits a “welcome step”
The Association of Taxation Technicians (ATT) says the decision to phase in the mandatory payrolling of benefits in kind is a “welcome step” to allow employers and payroll software providers more time to prepare for significant changes to how benefits are taxed.
Benefits in kind are non-cash perks such as company cars or private medical insurance. Currently, most employers report these once a year using a Form P11D, with tax collected through adjustments to employees’ tax codes. This can lead to inaccuracies, as the amounts are often based on estimates or outdated information. The employee might then receive an unwelcome tax bill after the end of the tax year for any underpaid tax.
Under payrolling, the value of these benefits is added to employees’ pay in real time, so the correct tax is deducted through the payroll each month. While this should improve accuracy and transparency, it also requires employers to gather detailed information more frequently about the benefits they provide and ensure their payroll and other internal systems can handle the changes.
Employers have been able to payroll benefits on a voluntary basis since April 2016, although the information to be reported has been fairly limited. HMRC had planned to introduce mandatory payrolling for all benefits and more detailed information requirements from April 2027. However, following discussions with the ATT, other professional bodies and the software industry, it has now confirmed a phased approach will be taken.
From April 2027, only the most common, usually straightforward benefits – company cars and fuel, vans and fuel and private medical insurance – will now have to be payrolled. Most other benefits, other than loans and living accommodation, will follow from April 2028, although employers can choose to payroll them in the 2027/28 tax year voluntarily if they wish.
The ATT says the revised timetable strikes a better balance between improving the system and allowing sufficient time to address practical and technical challenges in relation to the less commonly provided benefits, including the risk of payroll errors affecting employees’ wider finances. In the worst case scenario, a failed payroll submission might affect an employee’s Universal Credit claim, so it is important for employers to get the details right.
Jon Stride, chair of the ATT’s Technical Steering Group, said:
“This is a sensible and welcome step by HMRC. Moving to real-time taxation of benefits should ultimately improve accuracy for employees, but the original timetable based on full implementation in one go was overly ambitious. A phased approach gives employers, software providers and HMRC the time needed to get the systems right and avoid unnecessary disruption.”
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