14 July 2026
Following the previous announcement that mandatory payrolling of benefits will be now phased in from April 2027, the Government has released the draft clause for the upcoming Finance Bill 2026-27, which will be part of the Budget announcements in the autumn on what is known as Legislation Day.
Typically taking place just before the government goes into summer recess, the goal of Legislation Day is to allow for a period of technical public consultation on draft tax laws before they are formally introduced to Parliament later in the year. This process provides taxpayers, businesses, and tax professionals with greater certainty and the opportunity to provide feedback to ensure the legislation is workable and effective.
The draft clause confirms that mandatory reporting of benefits in kind in Real Time Information (RTI) from April 2027 will modernise the way benefits in kind (BiKs) are reported and taxed by moving from end-of-year processes to real-time payroll reporting. 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.
Since it was first announced back in January 2024, the Government has continued to engage with employers, representative bodies, such as the CIPP, and software developers. Reflecting on this engagement, the measures will now be introduced in phases, with the most common benefits to be mandated from April 2027, with the remaining BiKs to be mandatory from April 2028, except for employer provided loans and accommodation.
From April 2027, mandatory payrolling will apply to:
- medical benefit
- company cars
- vans
- car and van fuel.
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.
We will welcome these operational rules for employers and will share these with you as soon as they are released.
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