From 6 April 2027, it will be compulsory for employers to payroll some employee benefits. In this article, we consider the implications of the change on the management of employee benefits provided through insurance-based plans and the planning employers can put in place to prepare.

What is benefits payrolling?

Benefits payrolling refers to the process of including the taxable value of a Benefit in Kind (BiK) within payroll, enabling the income tax due to be collected in real time through PAYE. Employers then pay the associated tax to HMRC alongside the employer National Insurance Contributions (NICs). As many SMEs currently report taxable benefits annually through the P11D process, the move to mandatory payrolling represents a significant shift to real-time reporting and it will require employers to review and adapt their payroll processes and controls.

Recognising the scale of this transition, the Government has postponed the implementation on several occasions and the range of benefits within scope has also been phased over time. Mandatory BiK payrolling was initially scheduled for April 2026 before being deferred to April 2027 to give employers more time to prepare. In June 2026, it was announced that there will be a two-phase rollout, in April 2027 and April 2028.

What is changing?

Current HMRC guidance is that, along with company vehicles and fuel, the insurance-based benefits that require mandatory payrolling from April 2027 will include ‘employer-provided medical benefits’. It’s generally understood that this means Private Medical Insurance (PMI), but it’s not clear if it extends to dental insurance, medical cash plans, critical illness insurance, leisure travel insurance, or other insurance-based taxable benefits. The specific benefits within scope from April 2027 will be included in forthcoming HMRC guidance, expected before or alongside the Autumn Budget in October 2026.

Therefore, from either April 2027 or April 2028 (depending on the benefit), employers will need to report on and pay the income tax deducted from the employee and the Class 1A NIC due for each BiK in every payroll.

HMRC has stated that to support a smooth transition, penalties will not be applied for any inaccuracies made in the reporting for tax year 2027/28, unless they are deliberate (penalties for late filing and late payments in tax year 2027/28 will still apply). From April 2028, penalties and interest will apply though the details are yet to be published.

To discuss the technical payroll reporting requirements for your organisation, please contact our Payroll team. For further background on the changes, please also see (HMRC announce payrolling benefits in kind are to become mandatory from April 2026).

The key implications of moving to benefits payrolling

Employers will need to include the cash equivalent value of the benefit(s) provided to each employee in every payroll. Some of the implications to consider are:

• In the first year, employees will pay both the income tax due in respect of benefits provided in the previous tax year (under the old P11D process) and the tax due each month for the current tax year. This may feel like a double tax charge, so it is best to communicate this to employees in advance.

• Mandatory payrolling will require accurate cash equivalent values for each employee ahead of every payroll cut-off. Although these amounts are generally fixed during the benefit-policy year, changes such as joiners, leavers, dependant updates or revised plan selections must be captured and communicated to payroll promptly to ensure accurate reporting. When member changes are applied, the benefit provider may not be able to produce statements in time for the current payroll deadlines. Employers should engage with their providers early to understand the reporting timelines and assess whether these align with payroll cut-off dates.

• Policy renewal dates are unlikely to be synchronised with the tax year, or even with other BiK insurance-based benefits. Therefore, depending on the number of these policies you offer, there may be renewals occurring across the tax year, each likely to result in a new set of premiums for payroll. You may want to review your benefits and, where possible, consider synchronising renewal dates.

• If your PMI plan requires employees to complete a medical application to join, it can take some insurers a few weeks to underwrite and confirm membership. This could result in a relatively large one-off tax payment for an employee if multiple premiums are applied to payroll in one month. Alternatively, you could consider using a different joining method such as Moratorium or Medical History Disregarded. However, any change should be carefully evaluated, taking into account the cost implications and practical considerations, and professional advice is recommended.

• Statutory absences can create additional payroll challenges if an employee's pay is lower than the associated Benefit in Kind (BiK) charge. Employers should consider how these situations will be managed and ensure an appropriate process is in place to address any shortfalls in net pay.

• The BiK charge applied for leavers will need to be calculated promptly, usually based on the number of days covered under the policy during the employee’s final pay period.

Naturally, the change is expected to place additional administrative demands on already stretched internal teams and increase the risk of errors (and potentially HMRC penalties). Employers may need to reduce the flexibility of their benefits package or limit the frequency of employees’ changes, which can be a challenge to introduce and may not be popular with employees. Outsourcing the benefits administration to a professional adviser may provide a practical solution as it can ease the burden and support the compliance.

What should organisations be considering now?

The impact of the change will vary depending on the number of benefits to be payrolled, your benefits rules, the degree of flexibility you offer employees, the renewal dates, and the providers’ ability to issue information promptly. With April 2027 fast approaching, here are some steps to take now to get prepared:

• Review the flow of relevant data and timescales available

• Identify where responsibilities lie across your HR, finance, payroll, and external functions

• Consider the employee communications

• Assess whether you require external support

How we can help

Our Pensions and Employee Benefits team can provide advice to employers looking to review and structure their benefits to support accurate and timely payroll reporting under the new regime. We can assist with your employee communications, and provide as much administrative support as required, from managing the day-to-day benefits processing, through to producing the BiK reporting files required for each payroll.

For professional advice tailored to your circumstances, please fill out the form below and one of the team will be in touch to discuss your requirements.