Policy paper

Mandatory reporting of benefits in kind in Real Time Information (RTI) from April 2027

Published 13 July 2026

Who is likely to be affected

Employers that provide taxable benefits in kind to their employees and employees who receive those benefits.

General description of the measure

This measure reforms the way benefits in kind are reported and tax is paid on them. Benefits in kind will be required to be reported through payroll software and tax will be deducted in real time. This means that from April 2027, most employers who provide the following benefits in kind will no longer be able to report them after the end of the tax year:

• medical benefit
• company cars
• vans
• car and van fuel

They will be required to calculate Income Tax and Class 1A National Insurance contributions due in real time and report these benefits in kind through Real Time Information (RTI) through payroll software. From April 2028, most remaining benefits in kind except for employer provided loans and accommodation will be mandated to be payrolled.

Policy objective

The policy aims to modernise the taxation of benefits in kind by integrating their reporting and payment into real-time payroll processes. By moving away from end-of-year reporting, the measure will:

• simplify the system for employers and employees
• improve the transparency of tax liabilities
• ensure tax is calculated and collected more accurately and in a timely manner

This reform supports a more efficient and responsive tax system by reducing reliance on retrospective adjustments and complex processes. This improves clarity for taxpayers and helps businesses comply more easily with their obligations. It contributes to the government’s wider objective of creating a simpler, more digital, and more effective tax system that keeps pace with modern working and payroll practices.

Background to the measure

The government first announced this measure in January 2024 and confirmed on 28 April 2025 that more time would be provided to support business readiness. Since then, the government has continued to engage with employers, representative bodies and payroll software developers to refine delivery. Reflecting this engagement, and to balance the benefits of modernisation with the practical obligations on businesses, the measure will be implemented in phases. The most common benefits in kind will be mandated from April 2027, with remaining in-scope benefits in kind being mandated from April 2028.

Stakeholder feedback has indicated that employer provided loans and accommodation benefits in kind are particularly burdensome to payroll. These customers will continue to report through existing end-of-year processes until brought within scope at a later stage or where alternative arrangements are confirmed.

Detailed proposal

Operative date

The measure will have effect from 6 April 2027.

The measure will have further effect from 6 April 2028, when mandatory payrolling will extend to most remaining benefits in kind, completing the phased introduction of the regime.

The operative date does not apply uniformly to all employers and benefit types.

Transitional arrangements mean that certain benefits in kind will remain outside mandation at April 2027 and 2028.

Current law

Under current law, most benefits in kind are reported annually by employers on form P11D for Income Tax in accordance with provisions in Regulations 85 to 87 of the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682). Income Tax is generally collected after the end of the tax year through PAYE adjustments. Benefits in kind can currently be reported in real-time, on a voluntary basis under Chapter 3A of Part 3 of the Income Tax (Pay As You Earn) Regulations 2003.

The taxation and reporting of benefits in kind is provided for in Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

The liability and reporting requirement on the P11D(b) for Class 1A National Insurance contributions is provided for in Part 8 of the Social Security Contributions and Benefits Act 1992 and associated secondary legislation.

Provisions governing the operation of PAYE, including Real Time Information (RTI) reporting, are contained in the Income Tax (Pay As You Earn) Regulations 2003.

Proposed revisions

This measure will:

• amend Part 11 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) and the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) to provide a framework for the mandatory payrolling of benefits in kind
• provide power to modify how Schedule 24 Finance Act 2007 applies, so that penalties are not charged in relation to non-deliberate inaccuracies for a limited period of time for a period of one year
• amend Section 147 ITEPA to enable the calculation of the market value of classic cars to the beginning of the tax year

Primary legislation will:

• provide a power to require that benefits in kind to be reported through payroll software in real-time
• provide powers to specify, through secondary legislation, which benefits in kind are in scope and how the requirement will operate
• enable a phased implementation of the measure

Secondary legislation, for Income Tax and Class 1A National Insurance contributions, to be introduced at Budget 2026, will set out the detailed scope of benefits in kind covered, any exclusions, and the operational rules for employers.

Summary of impacts

Exchequer impact (£ million)

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.

Macroeconomic impact

This measure will be formally assessed once costings have been certified by the Office for Budget Responsibility but is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is expected to affect individuals who receive benefits in kind.

Moving to real-time taxation through payroll is expected to improve the accuracy of tax paid during the year and reduce the need for end-of-year adjustments. The precise impact on individuals will depend on the final scope and design of the measure, which will be set out in secondary legislation.

The measure is not expected to impact on family formation, stability or breakdown.

This measure is expected to impact individuals experience of dealing with HMRC. The change to reporting will require some familiarisation, and some individuals may have tax deducted for benefits in kind in real-time and some may pay these taxes through the current process. However, HMRC will provide clear guidance advising them of the change and their obligations. It is anticipated that over time these changes will simplify the process.

Equalities impacts

This measure may apply to individuals regardless of their protected characteristics. If a protected group is estimated to be overrepresented in this population it is considered to be disproportionately impacted.

The population impacted by this measure are more likely to be working age individuals. Individuals aged between 25 and 54 are estimated to be overrepresented, making up 78% of the impacted population, compared to their prevalence in the UK adult population (49%). Males are also estimated to be overrepresented, making up 70%, compared to their prevalence in UK adult population (50%). Individuals belonging to a White ethnic background are estimated to be overrepresented in the impacted population (91%) compared to their prevalence in the UK adult population (88%).

Where data were available there were no other protected groups overrepresented.

Administrative impact on business including civil society organisations

This measure is expected to have a significant administrative impact on around 280,000 employers who currently report benefits in kind through end-of-year processes. These are yet to be fully impacted but HMRC will work with Administrative Burdens Advisory Board on customer administration burdens and how we can reduce these where possible.

Overall, HMRC expects there to be significant continuing savings from reporting P11D through payroll software (approximately £18 million). These represent net savings after taking into account:

• a small increase in costs associated with gathering and accessing information
• preparing figures due to the move from annual reporting to monthly payrolling

The continuing savings are due to reduced agents’ costs and removal of some obligations that businesses are no longer required to undertake such as the administrative tasks involved in end of year reporting.

Software costs associated with updating payroll systems and processes to support real-time reporting of benefits in kind are expected be negligible as software upgrades are typically incorporated by providers. One-off costs are expected to include familiarisation with new legislation and the new reporting system.

One-off impact	(£ million)
Costs	8
Savings	Negligible

Continuing average annual impact	(£ million)
Costs	1
Savings	19
Net Impact on annual administrative burden	-1

The scale of the impact on businesses will depend on the detailed scope and operation of the measure, which will be set out in secondary legislation.

This measure is expected to have an impact on businesses’ experience of dealing with HMRC. The change to reporting will require some familiarisation, and some businesses may need to report and deduct Income Tax and Class 1A National Insurance contributions on benefits in kind in real-time using payroll software and some may have to report and pay after the end of the tax year. However, HMRC will provide clear guidance advising them of the change and their obligations. It is anticipated that over time these changes will simplify the process.

Operational impact (£million) (HMRC or other)

HMRC will need to make changes to IT systems to support safe implementation of this measure. These changes are currently expected to cost in the region of £10 million. HMRC will also update guidance and develop other approaches to help support customers, to enable real-time reporting of benefits in kind through RTI.

HMRC will also continue to engage with employers and software developers to support transition to the new system.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored using data collected through RTI and through ongoing engagement with stakeholders, including employers and payroll software providers.

HMRC will assess the effectiveness of the measure in improving accuracy and reducing administrative burdens as part of its wider evaluation programme.

Further advice

If you have any questions about the draft primary legislation for mandatory payrolling of benefits in kind, contact the employment income policy team by email: employmentincome.policy@hmrc.gov.uk.