HMRC’s phased approach to mandatory payrolling of benefits-in-kind has raised questions over whether the most complex elements of the reform have been resolved or just delayed.
This is according to Lewin Higgins-Green, EMEA head of employment tax & reward at professional services firm FTI Consulting.
Mandatory payrolling will be introduced over two years, with some benefits required to be processed through payroll from the 2027/28 tax year, while others remain within the existing P11D reporting system.
Higgins-Green says the hybrid approach risks increasing complexity for employers, with many likely required to operate and reconcile two parallel reporting systems rather than benefiting from simplification.
He says the inclusion of company cars in the first phase is particularly significant due to the complexity of car benefit arrangements, where changes to vehicles, fuel provision and employee circumstances can affect taxable values throughout the year.
He adds that this creates challenges for real-time payroll reporting, in which errors are harder to identify and correct before submission deadlines, particularly when employers have limited capacity to validate benefits data continuously. He says this increases both the administrative burden and the risk of incorrect employee taxation.
HMRC has confirmed which benefits will be brought into payrolling initially, but some of the more complex benefits have been deferred, suggesting the most challenging aspects of implementation remain unresolved.
Higgins-Green adds: “The phased rollout suggests HMRC is still working through how to handle the more complex benefits in real time, and it remains to be seen whether the timetable fully reflects the operational challenges involved.”