From April 2027 there will be big changes to how employers report and pay tax on employee benefits and expenses. The government plans to make the payrolling of most Benefits in Kind (BiKs) mandatory, meaning businesses will need to change the way in which they manage benefits, such as company cars, private medical insurance and other taxable perks made available to its employees. 

Limited company directors are being urged to understand these changes now, so that they're able to avoid future compliance issues and to ensure their business is prepared before the April 2027 deadline arrives.  

In this blog we look at what mandatory payrolling means, the effect it could have on your limited company, and the steps you need to take now to prepare. 

• Most Benefit in Kinds must be reported through payroll rather than the current annual P11D forms, from April 2027. 

• Both employers and employees will typically pay tax on benefits in real time through PAYE. 

• Employers must have accurate payroll processes and benefit records throughout the year. 

• By preparing for the changes now, payroll errors, compliance issues and unexpected tax liabilities can help to be avoided. 

The term 'payrolling benefits' refers to the process of reporting taxable employee benefits through a limited company's payroll system throughout the tax year. 

At present benefits are reported at the end of the tax year via a P11D form, but the change will be to move the total value of all the benefits included into payroll calculations, which will allow tax to be collected in real time through each employee's PAYE. 

Examples of benefits reported in this way can include: 

• Private medical insurance 

• Company cars 

• Fuel benefits 

• Gym memberships 

• Living accommodation 

• Other taxable employee perks 

For many businesses, voluntary payrolling has already been available for many years. April 2027 will see a change to this process, and it's expected to become the standard process for reporting most benefits.  

A Vantage Accounting client provides private medical insurance to both themselves and their employee through their limited company. 

The company used to report the benefit via the annual P11D, and whilst the process was compliant, it sometimes led to confusion when employees received unexpected tax code adjustments months after the end of the tax year. 

After speaking to their Vantage Client Director, the client arranged for the benefits to be voluntarily payroll-reported. This allowed employees to gain greater visibility over their tax liabilities, the administration required became must simpler, and year-end reporting requirements were dramatically reduced. 

This is the type of streamlined process that mandatory payrolling aims to achieve across UK businesses, and with the expert assistance from your Vantage Client Director is achievable to you in a few easy steps. 

Currently, employers have two options: 

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

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

• Company cars 

• Car fuel  

• Vans 

• Van fuel 

• Employer provided medical benefits 

• Private medical insurance 

Directors and employees will usually pay the correct tax during the tax year instead of having to wait for HMRC to adjust tax codes after year end. 

The government's objective is to make tax collection more efficient, reduce administrative burden and improve accuracy for employers and taxpayers. 

This will require updates to internal payroll processes, software systems and benefit tracking procedures for many limited companies. Your Vantage Client Director will be able to assist you with this process. 

For the majority of limited companies the transition will be straightforward, but others may need to make significant changes as to how they currently manage payroll and other employee benefits. 

Increased real-time tax reporting 

Benefits will be taxed when they're received rather than retrospectively. 

This should reduce situations where directors receive unexpected tax bills or amended tax codes following P11D submissions. 

Increased payroll responsibility 

Payroll records must accurately reflect all taxable benefits provided throughout the year. 

This places greater importance on maintaining accurate records and ensuring payroll software is configured correctly. 

Reduced P11D administration 

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

This could potentially simplify year-end compliance obligations and improve overall efficiency. 

Greater accuracy 

Businesses will need to monitor benefits continuously instead of reviewing them retrospectively after the tax year has ended. 

This often results in more accurate tax reporting and fewer corrections later. 

VAT rules change frequently, and Making Tax Digital (MTD) requires digital record-keeping and quarterly submissions. 

Your Vantage Client Director will ensure: 

• You register at the correct time 

• You charge the correct VAT rate 

• Your digital records meet MTD requirements 

• Your submissions are accurate and on time 

HMRC will determine the exact scope of mandatory payrolling, but directors should expect the most commonly 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 admin.

Whilst April 2027 may still feel like a long way away, early preparation can help to make the implementation significantly smoother when the changes come into force. We advise taking the following steps: 

Step 1: Review your existing benefits 

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

Step 2: Check your payroll system 

Your payroll software should be capable of processing Benefits in Kind correctly under the new rules. Vantage clients that use FreeAgent won't need to worry about this, as FreeAgent will be ready by the 2027 deadline. 

Step 3: Improve record keeping 

The quality of your payroll reporting depends on your record keeping. It's important that all benefits are tracked throughout the year rather than collected retrospectively. 

Step 4: Speak to your Vantage Client Director 

By understanding the impact now, you're able to have the time to make any necessary adjustments before mandatory implementation begins in April 2027. 

Step 5: Train internal teams 

If your limited company employs anyone to manage your payroll or HR administration, it's time to ensure they understand how benefits are reported and taxed from April 2027 onwards.

The introduction of mandatory payrolling represents a shift towards real-time tax administration. If you leave preparation too late, your business may experience: 

• Payroll errors 

• Incorrect tax deductions 

• Compliance risks 

• Increased administrative pressure 

• Employee confusion regarding net pay and benefits 

Plan to avoid unnecessary disruption, and ensure a smooth transition.

The introduction of mandatory payrolling of benefits represents one of the biggest changes to employer reporting requirements in recent years. While the new system is designed to improve accuracy and streamline tax collection, limited companies will need to review their payroll processes and ensure they are fully prepared ahead of the April 2027 deadline. 

The good news is that with proactive planning and expert guidance, the transition can be smooth, efficient and hassle-free. 

At Vantage Accounting, we help limited company directors stay ahead of legislative changes, maintain compliance and maximise tax efficiency across their businesses. 

Need guidance on employee benefits, payroll obligations or the most tax-efficient way to remunerate directors? Get in touch with our team today for expert support and practical advice tailored to your limited company.