While employers were previously required to start using payroll software to report taxable benefits by April 2026, the deadline has been delayed to 6th April 2027.
This means employers can continue using P11D forms to report benefits in kind until next year.
When compulsory reporting is introduced next April, most employee benefits – except for cheap or interest-free loans and employer-provided accommodation – must be payrolled.
These exceptions can still be reported through a P11D form for the foreseeable future, but it’s likely they will eventually be subject to mandatory payrolling, too.
For the 2026–2027 tax year, payrolling benefits remains voluntary, but if employers do want to payroll employee benefits for this year, they must register before 6th April 2026.
Here’s how things will change when payrolling benefits becomes mandatory.
Reporting employee benefits from 2027–2028 onwards
Once payrolling is mandatory, it won’t be necessary to register, as HMRC will automatically enforce this and remove benefits from employee tax codes in time for the deadline.
If an employer wants to payroll a cheap or interest-free loan or accommodation before this, they can register voluntarily. For the time being, though, the P11D process will still be available for employers who don’t want to payroll these benefits after March 2027.
If employers cannot accurately determine taxable benefit values during the tax year and can only provide reasonable estimates, there will be an end-of-year process to account for this.
To support employers transitioning to payrolled benefits, HMRC also won’t be charging penalties for errors during the first year (unless there is evidence of deliberate non-compliance). However, penalties and interest will still be charged for late filing and late payment.
How will this impact cashflow for businesses?
Tax is deducted in real time through payrolling, but employees may be taxed simultaneously on benefits received in previous years through their tax code. This means the mandatory payrolling move could see employees facing tax deductions for multiple tax years all at once.
If multiple deductions would cause financial difficulties for an employee, HMRC may accept a request to spread previous underpayments across more than one tax year. The tax agency will soon provide further guidance to help employers support their employees with this.
A technical note from HMRC is available on the government website, which explains mandating the reporting of benefits in kind and expenses through payroll software.
If you are an employer and your business needs help with payroll and tax management, you can always come to the gbac team to benefit from a range of financial services.
Our accountants in Barnsley can help you get ahead of the benefit payrolling mandate, ensuring everything is running smoothly by the time it’s no longer voluntary. Simply call 01226 298 298 or email info@gbac.co.uk to find out what our accountants can do for you.