Mandatory Payrolling of Benefits Is Coming

HMRC is introducing mandatory payrolling of certain employee benefits from April 2027.

The benefits that will need to be processed through payroll include:

• Company cars and car fuel
• Vans and van fuel
• Private medical insurance

Under the new rules, the taxable value of these benefits will be reported and taxed through the payroll during the year, rather than being reported to HMRC on a form P11D after the end of the tax year.

What does this mean for employers?

For many employers, the change will require updates to payroll procedures, software settings and internal processes. Employers will need to ensure benefit information is provided accurately and on time so that the correct tax is deducted from employees throughout the year.

Employees may also notice changes to their payslips and take-home pay, so clear communication will be important to avoid confusion and questions.

While the move is intended to simplify the reporting process in the long term, businesses should not underestimate the preparation required before the rules become mandatory.

Areas employers should review now

Businesses should consider:

• Whether payroll software is capable of handling payrolled benefits
• How benefit information is collected and communicated internally
• Whether existing payroll processes need updating
• How benefit changes during the year will be monitored and reported
• How employees will be informed about the changes

Employers who provide multiple benefits or operate complex remuneration packages may need to review their procedures well in advance of April 2027.

Payroll compliance is about more than payrolling benefits

The introduction of mandatory payrolling is a useful reminder that payroll compliance continues to become more complex. Employers must also ensure that areas such as PAYE, National Insurance, pensions auto-enrolment, holiday pay, statutory payments, National Minimum Wage compliance and employment status are being managed correctly.

Even small payroll errors can lead to HMRC enquiries, penalties, underpayments and additional administrative work.

How James Todd & Co can help

Our payroll team provides support that goes far beyond simply processing monthly payroll.

We can help businesses:

• Prepare for mandatory payrolling of benefits
• Review payroll procedures and compliance processes
• Ensure payroll software is configured correctly
• Manage PAYE and National Insurance obligations
• Support pension auto-enrolment compliance
• Assist with statutory payments, including maternity, paternity and sick pay
• Review director and employee remuneration structures
• Deal with HMRC payroll queries and correspondence
• Provide fully managed payroll services, giving business owners peace of mind that payroll obligations are being met

Whether you employ one person or a larger workforce, regular payroll reviews can help identify potential issues before they become costly problems.

James Todd & Co Tip

Although mandatory payrolling does not begin until April 2027, now is a good time to review your payroll procedures and benefit arrangements. Early preparation can make the transition smoother and help ensure that both your business and your employees are ready for the new rules.