Mandatory Payrolling of Benefits
The 2027 “Double Tax” Trap Employers Need to Know About
If your business provides employee benefits, like private medical insurance, company cars, or gym memberships, there’s a big change on the horizon.
From April 2027, HMRC will make payrolling of Benefits in Kind (BiKs) mandatory.
While the change was originally planned for April 2026, the rollout has been delayed by one year. That extra time is welcome, but it doesn’t remove the issue at the heart of this reform:
⚠️ A potential double taxation effect in the first year of operation.
What’s Changing?
Right now, most employers report benefits once a year on form P11D, and HMRC later adjusts employees’ tax codes to recover the tax due.
With payrolling, those benefits will be taxed in real time through payroll, meaning the tax is collected monthly, just like salary.
The P11D process will eventually be retired, and all benefits (except a few, such as accommodation or low-interest loans) will move to live, in-year reporting.
How Double Tax Could Happen in 2027/28
Here’s where things get tricky.
When payrolling becomes mandatory in April 2027, employees may temporarily end up paying tax twice, once through the new system and again through their adjusted tax code from the old system.
Example
- In 2026/27, an employee has a £6,000 taxable benefit (e.g. private medical insurance).
- By July 2027, the employer submits the final P11D, and HMRC adjusts the employee’s tax code to collect £2,400 tax (£200/month) for that year.
- In April 2027, the same £6,000 benefit begins being payrolled monthly, also taxing £200/month through PAYE.
- During 2027/28, the employee pays £400/month in total tax instead of £200, a temporary “double tax” hit.
By 2028/29, this overlap disappears, but for one tax year, employees’ take-home pay could fall noticeably.
Who Will Be Affected?
- Employers who don’t yet payroll benefits (and still rely on P11Ds)
- Employees receiving taxable benefits in 2026/27
- Businesses managing benefits manually or through legacy systems
If your benefits are already payrolled, you’re ahead of the curve, you’ll transition smoothly into the 2027 rules.
Why HMRC Is Doing This
The change aims to simplify and modernise benefit taxation, making it easier for employees to understand and reducing year-end admin for employers.
However, in the first year, it also accelerates HMRC’s tax collection and moves cashflow forward, effectively taxing benefits sooner rather than later.
What Employers Should Do Now
Although the implementation has been pushed to 2027, this is the perfect time to prepare.
✅ 1. Review your current benefit reporting
Identify which benefits you still handle via P11D.
Common examples include medical insurance, car allowances, and staff memberships.
✅ 2. Start payrolling early
You can voluntarily opt in now.
Doing this in 2025/26 or 2026/27 avoids the double tax overlap and spreads the change gradually.
✅ 3. Communicate with employees
Be transparent, explain that the first year of payrolling may reduce take-home pay due to HMRC’s transition rules.
Setting expectations early helps avoid confusion and complaints.
✅ 4. Check your software and provider
Ensure your payroll system (or provider) can handle real-time BiK reporting and accurate Class 1A NIC calculations.
✅ 5. Don’t forget P11D(b)
Even after payrolling starts, employers must submit form P11D(b) annually to report the Class 1A National Insurance due on benefits.
Our View: Simpler Long Term, But a Bumpy Start
From 2027 onwards, payrolling benefits will make life easier:
✅ No more year-end P11Ds
✅ Employees taxed fairly and consistently each month
✅ Fewer HMRC adjustments mid-year
But 2027/28 will be an adjustment period, and without preparation, employees could feel the pinch of that double deduction.
The earlier you transition, the smoother your payroll will run when the new system becomes law.
How Intelligent Payroll Is Helping Clients
We’re already planning for the 2027 transition across all clients.
Our team will:
- Manage the setup of payrolled benefits within your payroll system
- Handle employee communications and FAQs
- Continue completing P11D(b) filings correctly
- Ensure your HMRC submissions remain compliant at every stage
We’ll also review your benefit structure and recommend the best approach to minimise the 2027/28 overlap effect.
Final Thought
HMRC may have delayed mandatory payrolling of benefits until 2027, but the double tax trap hasn’t gone away.
By preparing early, employers can protect employees from an unnecessary shock to their take-home pay and ensure a smooth, compliant transition.
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💬 Need Help Preparing for 2027?
We can review your benefits setup, payroll system, and communication plan ahead of HMRC’s rollout.
Contact us today and we’ll make sure you’re ready long before the new rules arrive.