Businesses that offer employees perks, such as company cars, private medical insurance, or other benefits, need to understand payrolling benefits. Payrolling benefits means reporting these perks through the payroll system as they occur, rather than waiting until the end of the tax year to fill out forms like the P11D. This allows income tax and National Insurance to be automatically deducted, simplifying the process for both employers and employees.
HMRC’s new changes will make real-time reporting of benefits mandatory, starting in April 2027. Employers can choose to implement this system early, starting in the 2026/27 tax year. The key difference between voluntary and mandatory payroll is the timing of when businesses choose to adopt this process.
Understanding this difference is essential for businesses to avoid costly mistakes, ensure taxes are paid correctly and on time, and remain fully compliant when payrolling benefits become mandatory in April 2027. Employers wishing to begin voluntarily reporting benefits through payroll for the 2026/27 tax year must register by 5 April 2026.
What Are Payroll Benefits?
Payrolling benefits means reporting employee perks, like company cars, private medical insurance, or other taxable benefits, directly through the payroll system as part of each pay period. This ensures that income tax and National Insurance contributions are deducted in real time, rather than at the end of the tax year.
This system is different from traditional P11D reporting, where employers report benefits once a year after the tax year ends. With P11D, employees often face adjustments to their tax codes later, which can cause confusion or unexpected tax bills. Payrolling removes that delay, making the process faster and more accurate.
The benefits of payrolling extend to both employees and employers. Employees pay the correct tax throughout the year without surprises, and employers reduce administrative work and the risk of errors. It also provides a clearer view of taxable benefits in real time, helping businesses manage payroll efficiently.
Voluntary Payrolling: What You Need to Know
Voluntary payrolling allows employers to report taxable employee benefits through payroll before it becomes mandatory. By adopting payrolling early, businesses can start deducting income tax and National Insurance contributions on benefits in real time, rather than waiting until the end of the tax year.
Employers who want to take advantage of voluntary payrolling for the 2026/27 tax year must register with HMRC by 5 April 2026. Missing this deadline means the business will have to wait until the mandatory system starts after April 2026. Early adoption comes with several advantages. Voluntary payrolling can help businesses test payroll systems, train staff, and ensure smooth reporting when mandatory rules take effect. Employees also benefit by paying the correct tax throughout the year, avoiding any unexpected adjustments to their tax codes.
However, there are some limitations and considerations. Once a business opts in for voluntary payrolling, it cannot cancel mid-year. Some benefits may still require separate reporting, and careful planning is needed to ensure payroll systems correctly handle all taxable perks. Understanding the difference between voluntary and mandatory payroll helps businesses make informed decisions about whether early adoption is the right move.
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Mandatory payrolling: what you need to know
April 2026, HMRC will change how most benefits in kind (BIKs) are reported and taxed. Employers will no longer submit annual forms such as the P11D. Instead, benefits including company cars, private medical insurance, and other perks must be reported through payroll software in real time using Full Payment Submission (FPS). This ensures that income tax and Class 1A National Insurance are deducted throughout the year rather than at the end.
While payrolling is currently optional, it will become mandatory from April 2026. Most benefits will be included in the new system, though some items such as employment-related loans and living accommodation may still be payrolled voluntarily until they are phased in later.
Important Differences: Voluntary vs Mandatory Payrolling
When deciding how to handle employee benefits, it’s essential to understand the key differences between voluntary and mandatory payroll. This table highlights the key points businesses need to know when comparing Voluntary vs. mandatory payroll and preparing for payroll benefits in April 2026.
Feature | Voluntary Payrolling | Mandatory Payrolling |
Registration | Must register with HMRC by 5 April 2026 | No registration needed for most benefits after April 2026 |
Reporting Method | Benefits reported through payroll on a trial/early basis | All benefits reported in real time via payroll software |
Year-End Forms | Some benefits may still require P11D forms | Most benefits no longer require P11D forms |
Impact on Employees | Employees pay correct tax earlier, reducing end-of-year surprises | Employees automatically pay correct tax throughout the year |
Business Benefits | Allows testing payroll systems, staff training, and fixing issues early | Ensures full compliance, reduces errors, and streamlines reporting long-term |
Final Thought
Employers do not have to register for payrolling benefits before April 2026 unless they want to adopt voluntary payrolling for the 2026/27 tax year. If you choose voluntary payrolling, the registration deadline is 5 April 2026. After that, the system becomes mandatory, and most benefits will need to be reported in real time through payroll software. Understanding the difference between Voluntary vs. Mandatory payrolling is essential. It helps businesses decide whether early adoption is right for them and ensures smooth compliance with HMRC rules.
If you’re unsure about how payrolling benefits apply to your business or want guidance on registering early, you can submit a free consultation. This can help clarify your options and make sure your business is ready for the upcoming changes.
