Most practice planning conversations this year have been dominated by Making Tax Digital for Income Tax. That is understandable, because the first quarterly deadline landed on the 7th of August and the £30,000 threshold arrives in April 2027. But there is a second April 2027 change moving quietly through the system, and it will touch a very different part of your client base: the mandatory payrolling of benefits in kind.
HMRC published draft legislation and interim guidance on July 13th 2026, updated on July 23rd 2026, confirming that real time reporting of Income Tax and Class 1A National Insurance contributions on certain benefits will be phased in from the 6th of April 2027. Final phase one guidance is expected to be published to align with Autumn Budget 2026. In other words, the shape of the change is already known, and the preparation window is now.
After stakeholder feedback, HMRC dropped its original single big bang approach in favour of two phases.
Phase one, from April 6th 2027. Payrolling becomes mandatory for:
For these benefits, Income Tax and Class 1A National Insurance must be reported and paid in real time through Real Time Information, in the year the benefit is received.
Phase two, from April 6th 2028. Most remaining benefits in kind come into the mandatory regime.
Loans and living accommodation. These stay outside the mandatory regime for now and remain available to payroll voluntarily. HMRC has said a timetable will be confirmed later.
Critically, the P11D does not disappear on 6 April 2027. Your clients will still file P11D and P11D(b) forms for 2026/27 in the normal way by July 6th 2027, and P11Ds will still be needed during 2027/28 for benefits outside phase one that have not been voluntarily payrolled. For many employers, 2027/28 means running two reporting routes side by side.
Payrolling looks like a payroll department problem. In practice it is a data problem, and firms are usually the ones holding the data.
Under the P11D system, a benefit could be valued once, after the year end, with plenty of time to reconcile lease schedules, insurer renewal lists and fuel records. From April 2027, a company car change, a new joiner, a leaver or a mid year switch in medical cover has to reach payroll in time for the correct pay period. HMRC's own guidance is blunt on this point: employers should not underestimate the time it takes to make payroll processes robust enough for real time benefit reporting, and information flows between benefit providers, HR, finance and payroll need to be assessed at least a year in advance.
For any firm running payroll bureau services, that means the accuracy of your monthly submissions will depend on how quickly clients tell you things they have historically told you in July.
This is the single most valuable thing you can raise with employer clients this year. In 2027/28 there is a one off overlap of Class 1A National Insurance payments.
Two sets of Class 1A therefore fall due in the same financial year. HMRC explicitly advises employers to reflect this dual obligation in their budgets. A client with a large company car fleet or wide private medical cover could face a material and entirely predictable cash flow squeeze. Flagging it in autumn 2026, rather than spring 2027, is exactly the sort of proactive advice clients remember at renewal.
HMRC will automatically remove benefits in kind from employees' tax codes ahead of the 6th of April 2027, so the same benefit is not taxed twice. However, underpayments carried forward from earlier years will remain in tax codes.
The result is predictable. Some employees will see real time tax on this year's benefits alongside a coded collection of tax relating to earlier years, and will conclude they are being taxed twice. Employers need to explain, clearly and early, that tax on benefits is moving out of arrears and into the current year. Where the change causes genuine hardship, employees should be directed to HMRC to discuss their options. It is also worth remembering that PAYE deductions are subject to the overriding limit, so tax deducted in a pay period cannot exceed 50 per cent of an employee's pay, which can push uncollected amounts into later periods.
Practices that draft a short, plain English employee briefing template now will save themselves a great deal of reactive work in April 2027.
There is no registration requirement for the mandatory benefits. From April 2027, payrolling company cars, car fuel, vans, van fuel and medical benefits simply becomes the default.
Registration still matters for everything else. HMRC's voluntary payrolling registration service reopens in November 2026 for non mandatory benefits, including loans and accommodation, with a registration deadline of 5 April 2027. Clients who would rather avoid running two parallel reporting processes during 2027/28 should be identified before November so the registration is not missed. Note that the voluntary service will not include the additional RTI data fields being introduced for the mandatory regime, so it will not behave identically.
Firms that treat this as a project rather than a deadline tend to arrive in April 2027 calm. A workable sequence looks like this.
HMRC has offered a limited easement. For the 2027/28 tax year, inaccuracy penalties will not be charged for errors related to mandatory payrolling in RTI returns unless there is evidence of deliberate non compliance. That easement does not extend to late filing or late payment, where the usual RTI penalties and statutory late payment interest still apply. The message is familiar to anyone who lived through the MTD soft landing: leniency on getting the numbers slightly wrong is not leniency on being late.
April 2027 now carries two significant changes at once. MTD for Income Tax pulls in a much larger population of sole traders and landlords, and mandatory payrolling reshapes how employer clients report benefits. The two land in the same month, on the same teams, in the same firms.
The difference is that most practices are already resourcing MTD. Benefits in kind is the one more likely to be discovered late. A short exercise this autumn, identifying which clients are in scope, where the data comes from and what the Class 1A overlap will cost them, converts a compliance headache into a genuinely useful advisory conversation. That is a much better position than explaining it in the spring.