HMRC has confirmed that mandatory real-time reporting of income tax and Class 1A National Insurance on certain benefits in kind and taxable expenses will now be phased in from 6 April 2027. For small employers, the update is less a reason to relax and more a useful window to get payroll data, software settings and employee records into better shape before the first deadline arrives.
The change matters because benefits that have often been handled through annual P11D processes are moving closer to normal payroll reporting. That can affect small firms that provide company cars, vans, fuel cards, private medical cover or other taxable perks, even when those benefits are offered to only a handful of employees.
What HMRC has changed
HMRC’s latest guidance says the move will be introduced in two phases. Phase 1 starts from 6 April 2027 and covers mandatory payrolling for company cars, car fuel, vans, van fuel and employer-provided medical benefits. Phase 2 is expected from April 2028 and will bring in most other benefits in kind, while loans and accommodation will remain voluntary.
The department says the phased approach follows engagement with industry experts and is intended to support a smoother transition for businesses. It also says draft data item guidance is due in the coming weeks, with further technical guidance expected by July 2026 and final phase 1 guidance aligned with Autumn Budget 2026.
Why this matters for small businesses
Many smaller employers do not have a large payroll team to absorb process changes at short notice. If a business currently gathers benefits data once a year for a payroll bureau, accountant or internal bookkeeper, real-time reporting will need a more regular flow of information. Vehicle changes, fuel availability, medical cover starts and leavers may all need to be captured quickly and accurately.
The practical risk is not only tax calculation. It is the admin around payroll cut-offs, manager approvals, benefit valuations and employee queries. A company car issued late in the month, a van made available for private use, or a private medical policy added outside the usual renewal cycle could all become payroll timing issues if the underlying records are not kept up to date.
There is also a software angle. HMRC says technical specifications for developers will be updated for April 2027, and that 94 real time information data fields for benefits in kind are being removed from the revised requirements. Small employers should expect payroll providers, accountants and bureaux to make their own system changes before the rules bite.
What to check now
The first sensible step is to list which taxable benefits the business currently provides. For many SMEs that will be a short list: company vehicles, fuel, medical cover, relocation support, equipment with private use, or other perks given to directors and staff. The key question is whether the records are detailed enough for payroll reporting, not just year-end review.
Employers should also speak to their payroll software provider, payroll bureau or accountant about the expected timetable. Ask when their systems will support the new reporting, what information they will need from the business, and whether existing benefit records will have to be cleaned up before April 2027.
For firms already preparing for wider HMRC reporting changes, this sits alongside the same broad discipline as digital record keeping and tax admin planning. BritishSME readers may also find our guide to Making Tax Digital for Income Tax useful as a reminder that compliance changes are often easier to handle when records, software and responsibilities are reviewed early.
A useful deadline, not a distant one
April 2027 can sound far away, but small employers will need time to check benefits data, agree internal responsibilities and train whoever handles payroll inputs. Businesses with company vehicles or medical benefits should not wait until the end of the 2026-27 tax year to work out how the new reporting will operate in practice.
The best approach is a short preparation plan: identify affected benefits, confirm who owns the data, speak to advisers or software providers, and watch for HMRC’s further guidance this summer and final phase 1 guidance around Autumn Budget 2026. That should help small firms avoid a rushed payroll change when mandatory payrolling starts.
Source
Source: HMRC guidance on the phased introduction of mandatory payrolling for benefits in kind.
