From 6 April 2027, employers will be required to payroll certain employee benefits in kind (BiKs), with most remaining benefits expected to come within the mandatory regime from April 2028.

The change represents a significant shift from the traditional P11D process. Rather than reporting taxable benefits after the end of the tax year, employers will increasingly need to calculate and report benefits through payroll in real time.

For employers providing insurance-based benefits, such as private medical insurance, this could create additional administrative challenges. Employers will need to ensure that accurate benefit information is available for each payroll and that changes to employee benefits are communicated promptly.

What is benefits payrolling?

Payrolling benefits in kind involves including the taxable value of an employee’s benefit within payroll so that the associated income tax is collected through PAYE during the tax year.

Under the current system, employers generally report taxable benefits on forms P11D after the end of the tax year. HMRC then collects the associated income tax, usually by adjusting the employee’s tax code.

Under payrolling, the taxable value is instead reflected in the employee’s taxable pay each pay period. This means that tax is collected in real time and the benefit is reflected on the employee’s payslip.

The Government has been planning to make payrolling mandatory for several years. The original April 2026 implementation date was deferred, and in June 2026 HMRC confirmed that the changes would be introduced in two phases.

What is changing?

From 6 April 2027, mandatory payrolling will apply to certain benefits, including:

• Company cars and car fuel;
• Vans and van fuel; and
• Employer-provided medical benefits.

For employers offering insurance-based benefits, private medical insurance (PMI) is therefore likely to be particularly relevant.

There has also been uncertainty around whether other insurance-based benefits, such as dental insurance, medical cash plans, critical illness cover and travel insurance, will fall within the April 2027 rules. Employers should check the final HMRC guidance once published before determining how these benefits should be treated.

Most other benefits will be brought into mandatory payrolling from 6 April 2028.

Loans and employer-provided living accommodation remain outside the mandatory payrolling regime for now. Employers can continue to report these benefits through the P11D process, although voluntary payrolling may be available where the relevant requirements are met.

What does this mean for insurance-based benefits?

The move to real-time payrolling could create additional administrative requirements where benefits are provided through an external insurer or benefits provider.

For example, the taxable value of an employee’s PMI may change during the year when:

• An employee joins or leaves the scheme;
• An employee adds or removes dependants;
• The level of cover changes; or
• The insurance premium changes.

Under the traditional P11D process, many of these changes could be dealt with retrospectively at the end of the tax year.

Under mandatory payrolling, employers will need to have reliable information during the year so that the correct benefit value can be included in payroll.

Employers should therefore review how information currently flows between HR, payroll and their benefit providers.

Payroll deadlines will become more important

One of the key practical challenges will be ensuring that changes to employee benefits are captured before the relevant payroll deadline.

For example, an employee may join a PMI scheme shortly before payroll is processed. If the insurer does not provide confirmation of the employee’s membership and premium until after payroll has closed, the employer may not have the information needed to calculate the correct taxable benefit.

Similar issues can arise when employees add dependants, change their cover or leave the business.

Employers should establish clear cut-off dates for benefit changes and ensure that HR, payroll and external providers understand those deadlines.

Policy renewals

Insurance policies will not necessarily renew in line with the tax year.

An employer’s PMI policy could, for example, renew in September, while another insurance-based benefit renews in January. Each renewal may result in changes to the premiums used to calculate the taxable benefit.

Businesses with multiple insurance-based benefits should therefore consider whether their current renewal arrangements create unnecessary administrative complexity and whether there is scope to align renewal dates.

Other payroll considerations

Employers should also consider how mandatory payrolling will operate in less straightforward situations.

For example, statutory leave can result in an employee receiving significantly reduced cash pay. If the taxable value of their benefits is relatively high, there may be insufficient cash remuneration from which to collect the associated PAYE.

Leavers will also need to be dealt with promptly, with the taxable benefit generally needing to reflect the period for which the benefit was available.

These situations should be considered when employers design their new processes.

What about P11Ds?

The introduction of mandatory payrolling does not mean that the P11D process disappears immediately.

During the transition period, employers may still have P11D reporting obligations for benefits that remain outside mandatory payrolling.

In particular, loans and employer-provided accommodation remain outside the mandatory regime for now.

Employers should therefore review their benefits and determine which will be:

• Mandatory payrolled from April 2027;
• Mandatory payrolled from April 2028;
• Voluntarily payrolled; or
• Continued to be reported through P11D.

What should employers do now?

With April 2027 approaching, employers should start preparing now.

Review your benefits — Identify all benefits currently provided to employees and determine when each is expected to come within mandatory payrolling.

Review your data flows — Establish where benefit information comes from, how frequently it is updated and whether it can be provided in time for each payroll.

Speak to benefit providers — Employers should contact insurers and other benefit providers to understand how they will support the new requirements and how quickly they can provide updated information following employee changes.

Check your payroll systems — Speak to your payroll provider about the changes and allow sufficient time to configure and test the system before April 2027.

Communicate with employees — Employees should be informed that the way tax on their benefits is collected is changing. They may notice changes to their net pay and should understand that this is generally a change in the timing of tax collection rather than a new tax charge.

Consider additional support — The increased frequency of benefit reporting may place additional pressure on HR, finance and payroll teams. Employers with complex benefit arrangements may wish to consider whether some of the administration can be outsourced.

Key takeaways

Mandatory payrolling will change benefits administration from a largely year-end exercise into an ongoing payroll process.

For employers providing insurance-based benefits, the key challenge may be obtaining accurate information from benefit providers quickly enough to meet payroll deadlines.

Businesses should therefore:

• Identify which benefits will be subject to mandatory payrolling and when;
• Review their current HR, benefits and payroll processes;
• Engage with benefit providers early;
• Review renewal dates and employee change procedures;
• Test payroll systems ahead of April 2027; and
• Communicate the changes clearly to employees.

HMRC has indicated that it will take a light-touch approach to penalties for inaccuracies in the 2027/28 tax year, except where errors are deliberate. However, employers should not wait until April 2027 to address the practical challenges.

If your organisation provides private medical insurance or other employee benefits and you would like to understand how mandatory payrolling may affect your payroll and reporting processes, please contact our tax and payroll team.