HMRC Mandatory Payrolling of Benefits-in-Kind: What do businesses need to do before April 2027?
27th Jul 2026
HM Revenue & Customs (HMRC) has published updated guidance which will bring a major change to how Benefits in Kind (BiK) is taxed and reported in the UK. These changes, set to be implemented, from April 2027 will require most employers to move to a mandatory payrolling of benefits, transforming what is typically an annual process into real-time reporting.
Businesses that provide employees with company cars, vans or a salary sacrifice scheme act now to avoid disruption and ensure compliance ahead of April 2027.
What are the HMRC BiK Changes?
In October 2024, the UK Government announced plans to modernise tax reporting by moving most Benefits-in-Kind into real-time payroll reporting systems. HMRC has since confirmed a phased rollout with:
Key Implementation Dates
From 6 April 2027 (Phase 1). Mandatory payrolling will apply to:
- company cars (including Salary Sacrifice)
- company vans
- fuel
- employer-provided medical benefits
From 6 April 2028 (Phase 2). Expansion to include most other Benefit in Kind
- Exemptions included for beneficial loans and accommodation benefits.
What is mandatory payrolling?
Benefits-in-Kind will be taxed and reported in real-time through payroll rather than being declared annually via a P11D form.
This will mean that Income Tax and Class 1A National Insurance contributions will be calculated through payroll systems.
- Employers will need to report BiKs using Full Payment Submission (FPS) each pay period.
- Payroll will become integral to benefits administration.
The decision to bring in mandatory payroll reporting for BiKs is designed to improve accuracy and transparency but also places more responsibility on with the employer rather than employees to ensure data is correct and up to date.
Why does this matter for businesses with company cars and vans?
From April 2027, Businesses that operate company cars, vans, or salary sacrifice schemes will need to ensure they accurately report data. This includes:
- accurate vehicle data (e.g CO2 emissions, vehicle P11D value)
- integration between fleet and payroll systems
- processes for managing vehicle changes during the financial year
HMRC’s guidance focuses heavily on Benefit Type F (cars) and Benefit Type G (vans) as key areas of focus where detailed reporting will be required via payroll.
What are the key changes to Benefits-in-Kind reporting?
- BiKs will be reported via Full Payment Submission (FPS) instead of P11D forms
- Employers must submit benefit data every pay period
- Additional reporting fields will capture detailed benefit information
- Payroll software must be capable of handling real-time tax and NIC calculations
What problems could I expect from the change to Benefits-in-Kind reporting?
The draft HMRC guidance has highlighted some key real-world scenarios where businesses must be ready to adapt for:
- employees leaving mid-year
- insufficient salary to deduct full tax owed
- changes to benefits part way through the year
- mergers, acquisitions, or payroll migrations
- managing multiple benefits across different pay frequencies
Without a robust process, businesses risk compliance issues that impact employees.
What are the penalty and compliance risks of the new Benefits-in-Kind reporting?
HMRC has confirmed penalties and interest may apply where reporting or payment errors occur, or submissions are late. Errors in payroll data could see significant fines and incorrect valuations on benefits could cause compliance issues. It’s important for businesses to have the right technology and fleet partner in place to avoid these risks.
Who will be impacted by HMRC's Benefits-in-Kind reporting changes?
HMRC has made it clear that these changes, to BiKs reporting will be wide reaching including (but not limited to):
- employers providing Benefits in Kind
- payroll teams and service providers
- accountants and tax advisers
- payroll software developers
- vehicle leasing and fleet management companies
What is the rollout timeline for new Benefits-in-Kind reporting?
- July 2026: Further technical guidance expected
- Late 2026 (Autumn Budget): Final framework likely to be confirmed
- April 2027: Phase 1 mandatory payrolling begins
- April 2028: Expansion to most remaining benefits
What should businesses do now for Benefits-in-Kind reporting?
Driveway Vehicle Solutions advises businesses to begin preparing as soon as possible.
- Audit your benefits – identify all Benefits-in-Kind currently offered especially vehicles
- Review Payroll systems – ensure software can handle BiK reporting via FPS and process real-time information
- Data Accuracy – check that vehicle and benefit data is up-to-date and be and easily accessible across key systems and integrations
- Check with your Partners – speak to your fleet provider, payroll provider, and tax specialists
- Educate your team – if you provide company vehicles, ensure your team understands the changes
In Summary
HMRC’s switch to mandatory payroll reporting for Benefits-in-Kind is a big shift for UK employers. Real-time reporting and increased need for data and compliance will see payroll and fleet working closer than ever before.
This is where the right fleet partner matters most. Driveway Vehicle Solutions isn’t just a leasing company, we’re an extension of your business as an end-to-end fleet partner. From sourcing and funding the vehicles to managing and maintaining them, we know your fleet and the data behind it that ensures BiK compliance. With over 170 dealers and over 40 years' experience in fleet with dedicated support, we ensure your business stays compliant and ahead with company vehicles.
Need support?
Driveway Vehicle Solutions help you:
- source and provide the right vehicles
- keep vehicle data up to date and payroll ready
- align fleet operations with real-time BiK reporting
- manage vehicles across their full lifecycle
- reduce risk with a single fleet partner and specialist
