Payrolling Employee Benefits Becomes Mandatory in April 2027: What Limited Company Directors Need to Know

Everything is set to change for how employers report and pay the tax due on employee benefits and expenses. April 2027 will see the government planning to make the payrolling of most Benefits in Kind (BiKs) mandatory, which is set to change the way businesses manage benefits, including company cars, private medical insurance and other taxable perks. 

It's really important for limited company directors to understand the changes now so they're able to avoid future compliance issues, and ensure their business is fully prepared ahead of the April deadline.  

This blog explores mandatory payrolling, the effects it could have on your limited company, and what you need to do to prepare for Aprill 2027.

• April 2027 will see most Benefits in Kind needing to be reported through payroll instead of through the annual P11D forms 

• Both employees and directors will pay the tax due on their benefits through PAYE in real time 

• Employers will need to have accurate payroll processes and benefit records throughout the whole year 

• By preparing early you'll be able to help avoid payroll errors, compliance issues and any unexpected tax liabilities 

The process of reporting taxable employee benefits throughout the year, through a limited company's payroll system. 

So instead of reporting benefits at the end of every tax year via a P11D form, the total value of the benefit/s are included in your company's payroll calculations, allowing the tax owed to be collected in real time through your employee's PAYE. 

Benefits that can be reported using this method include: 

• Private medical insurance 

• Company cars 

• Fuel benefits 

• Gym memberships 

• Living accommodation 

• Other taxable employee perks 

Voluntary payrolling has been available for many years for a lot of businesses, but April 2027 will see a change to this process. It's expected this new process will become the standard process for the reporting of most benefits. 

An Aardvark client provides for themselves and their employees private medical insurance.  

In previous tax years the company used annual P11D reporting to declare the benefit. This process was 100% compliant, but there were times when it led to confusion, especially when employees received unexpected tax code adjustments months after the end of the tax year.  

The client spoke to their Aardvark Client Director, who was able to voluntarily report the benefit via payroll. This allowed the client's employees to have greater visibility over their tax liabilities, the admin needed became much simpler, and the company's year-end reporting requirements were significantly reduced. 

Streamlining the process is exactly what the mandatory payrolling aims to do for UK businesses, and with help from the expert team here at Aardvark, it's easily achievable in a few steps. 

Currently employers have two options: 

1. Report BiKs voluntarily through payroll. 
2. Annual report benefits using P11D forms. 

From April 2027, the following taxable benefits must be reported through payroll as and when they happen: 

• Company cars 

• Car fuel  

• Vans 

• Van fuel 

• Employer provided medical benefits 

• Private medical insurance 

Directors and employees will need to pay the correct tax due throughout the tax year, rather than waiting for HMRC to adjust tax codes after year end has finished.  

The government's main objective is to make the collection of taxes more efficient, reduce the overall administrative burden, and ultimately to improve the accuracy for both employers and taxpayers.  

This will require updates to internal payroll processes, software systems and benefit tracking procedures for many limited companies.

From April 2028, the following taxable benefits will also need to be reported through payroll as and when they arise: 

• Mobile phones exceeding exemption limits 

• Income protection benefits 

• Other taxable staff benefits 

Living Accommodation and Beneficial Loans will be exempt from needing to be reported. 

Employees that are deemed as Globally Mobile are exempt from payrolling, and can continue using the current P11D submission process at the end of each tax year.  

For most limited companies the transition will be relatively straightforward, but for some they may need to make significant changes to how they're currently managing their payroll and their other employee benefits.  

More real-time tax reporting 

All benefits will be taxed when received, rather than retrospectively. 

This should reduce receiving unexpected tax bills or amended tax codes after P11D submissions. 

Increased payroll responsibility 

Taxable benefits provided throughout the year must now be recorded and processed accurately through payroll. As a result, businesses will need to place greater emphasis on maintaining accurate payroll records and ensuring their payroll software is configured correctly to report benefits and deductions compliantly. 

Reduced P11D administration 

For many businesses, mandatory payrolling should significantly reduce the reliance placed on annual P11D submissions. 

This potentially could simplify yearend compliance obligations and improve overall efficiency. 

Increased accuracy 

Businesses will need to monitor benefits continuously rather than reviewing them retrospectively after the tax year ends. 

This should mean more accurate tax reporting, and fewer corrections later.

Whilst it's up to HMRC to determine exactly what the scope of mandatory payrolling will look like, directors can expect the most provided BiKs to be included. 

Examples may include: 

• Company cars 

• Fuel benefits 

• Private medical insurance 

• Mobile phones exceeding exemption limits 

• Income protection benefits 

• Certain accommodation benefits 

• Other taxable staff benefits 

It's advisable for directors to review their current benefit arrangements now to understand how these changes may impact their payroll administration. 

April 2027 may still be a little way away, but preparing for it now will help to make all the difference when the new changes come into force. We're advising clients to take the following steps: 

1: Review your existing benefits 

Identify all benefits that your company currently provides to its directors and employees. It can be a surprise sometimes as to how many benefits create reporting obligations. 

2: Check your payroll system

If Aardvark aren't taking care of your payroll submissions, please check with your provider to ensure they are compliant.

If we are currently looking after your payroll submissions, you won't need to worry about this as our software is ready for the changes.

3: Improve record keeping 

The quality of your payroll reporting will depend on the quality of the records you maintain. It's important to ensure any benefits are tracked throughout the year rather than only collected retrospectively. 

4: Speak to your Aardvark Client Director 

Understanding what's coming now means you have plenty of time to make any necessary tweaks before the mandatory implementation begins in April 2027. 

5: Train internal teams 

If you employ anyone in your limited company that manages your payroll or HR admin, we'd suggest ensuring they understand the changes that are coming and how benefits are reported and taxed from April 2027. 

The introduction of mandatory payrolling is more than just a reporting change, it represents a shift towards real-time tax administration.  

By delaying preparation you may leave your business vulnerable to: 

• Payroll errors 

• Incorrect tax deductions 

• Compliance risks 

• Increased administrative pressure 

• Employee confusion regarding net pay and benefits 

Planning now means a smoother transition further down the line whilst avoiding unnecessary disruption. 

The mandatory payrolling of benefits is one of the biggest reporting changes for employers in the past few years, and in theory the change should be relatively straightforward and simplify tax collection and improve accuracy, but in order to do so it will need limited companies to review and update their payroll processes well in advance of April 2027. 

With early preparation and the right level of expert support, the transition to mandatory payrolling will be straightforward. 

At Aardvark Accounting, we help limited company directors navigate legislative changes, stay compliant with their obligations, and maximise tax efficiency across their businesses. 

If you need advice on employee benefits, payroll compliance or director remuneration, simply get in touch with our team today.