On 15 June 2026, HMRC officially confirmed a partial delay to the mandatory payrolling of Benefits in Kind (BIK). The obligation, originally scheduled to apply to all benefits from 6 April 2027, will now follow a two-phase timetable. For HR teams, IT directors, and payroll software vendors in the UK, the announcement brings short-term relief — but also medium-term complexity.
Background: why mandatory BIK payrolling was expected
Currently, UK employers report most benefits in kind via the P11D form, submitted once a year after the end of the tax year. The system is widely acknowledged to be administratively burdensome: employees see tax collected through their tax code in the following year, not in real time.
HMRC intended to close this gap by making payrolling of BIK mandatory: benefits would be reported and taxed monthly through payroll software, like ordinary salary. The stated goal was a full switch by 6 April 2027, with the P11D progressively abolished.
What HMRC announced on 15 June 2026
The announcement introduces a two-stage phased approach (HMRC official guidance):
Phase 1 (6 April 2027): company cars, car fuel, vans, van fuel, and employer-provided medical insurance. The number of required data fields has been reduced from 126 to 32, simplifying integration work for payroll software vendors.
Phase 2 (April 2028): the majority of remaining benefits in kind transition to the mandatory regime.
Outside mandatory scope: employee loans and employer-provided living accommodation remain under the voluntary regime until further notice.
P11D returns remain mandatory for the 2025-2026, 2026-2027, and 2027-2028 tax years, depending on which benefits fall under each phase.
What this means in practice for employers
Two parallel systems until 2028. This is the central friction point. Employers managing benefits that span both Phase 1 (company cars, medical insurance) and Phase 2 (other BIK) will need to run a monthly payrolling stream alongside an annual P11D process for at least one full tax year. Caroline Harwood, National Head of Employment Tax at BDO, summed up the challenge bluntly:
“This half-way house solution won’t help anyone. It will put extra pressure on employers who will now have to contend with two systems rather than one.” (BDO, 16 June 2026)
Payroll software vendors must revise their roadmaps. Vendors including IRIS Payroll, Sage Payroll, Xero Payroll, and Zellis had calibrated their development plans around a full switch in April 2027. The reduced Phase 1 scope (32 fields instead of 126) simplifies certification work, but the architecture must now handle two parallel reporting regimes. Final technical specifications for vendors are expected in the second half of 2026.
For IT directors: a payroll project that runs longer. If your organisation had planned a P11D-to-payrolling migration project for 2026, the timeline has shifted — but it has not been cancelled. Phase 1 is a firm obligation by 6 April 2027, which is less than a year away. Organisations that have not yet started reviewing their payroll configuration need to do so now, before definitive specifications are released and specialist HR consultancies become fully booked.
Impact on employee tax codes. Employees affected by Phase 1 will have their tax codes adjusted from April 2027 to remove current BIK adjustments. All others will see no change until 2028. HR teams should prepare for employee questions about this visible discrepancy from the very first payslips of the new tax year.
What to watch
HMRC’s technical specifications for payroll software vendors are due in the second half of 2026: their actual release date will determine whether Phase 1 is operationally achievable. BDO raises the possibility of a further global delay if HMRC misses that commitment, describing this postponement as “the latest example of HMRC’s inability to deliver a major change programme on time.” The exact scope of Phase 2 (April 2028) also remains incomplete at this stage. Also worth watching: how HMRC handles complex benefits such as electric vehicles embedded in salary sacrifice schemes.
For broader context on UK regulatory compliance: our article on Making Tax Digital for Income Tax in the UK, which covers the real-time reporting obligation that came into force in April 2026, and our overview of the UK ERP market: Sage UK, Access Group, and post-Brexit challenges. For the payroll-ERP integration angle, see our HR/payroll ERP guide: integrated HRIS vs dedicated module in 2026.
