Mandatory payrolling of benefits: what charities need to know ahead of April 2027
Stuart McKay · Posted on: January 14th 2026 · read
Charities employing staff will face a significant payroll and compliance change from April 2027, when the payrolling of most benefits in kind (BiKs) becomes mandatory.
Under the current system, employers can choose to payroll most benefits voluntarily, with non‑payrolled items reported annually via Forms P11D and P11D(b). From 6 April 2027, however, the majority of benefits will need to be reported and taxed in real time through payroll using Real Time Information (RTI). Although the start date has been deferred by a year, the reform represents a substantial shift in approach and forms part of HMRC’s wider drive towards real‑time tax reporting and digital compliance.
A recent briefing by the Charity Finance Group explains that the new regime will require income tax on benefits to be deducted across pay periods during the tax year, rather than collected later through tax code adjustments.
Expanded Full Payment Submission (FPS) fields will capture benefit data, and most employers will no longer need to register separately in order to payroll benefits. Certain benefits, notably employer‑provided loans and accommodation, will remain outside the mandatory regime, although voluntary payrolling will still be possible.
While the change will largely remove the need for annual P11D reporting, it introduces new operational complexity. Particular challenges may arise where benefits start or change mid‑year, where employees leave part way through the year, or where tax deductions approach the 50% overriding limit. HMRC has confirmed a “soft landing” for 2027/28, meaning it will not issue penalties for inaccurate benefit reporting unless there is evidence of deliberate non‑compliance, although interest and late‑filing penalties will still apply.
For charities, especially those with limited internal payroll capacity or outsourced payroll arrangements, this is more than a technical update. Payrolling benefits will become a routine payroll process rather than an annual compliance exercise. Finance and HR teams will need clear systems for identifying taxable benefits and expenses promptly and ensuring they are processed accurately.
Although the mandatory start date remains over a year away, the additional time should be used proactively. Charities are encouraged to review their existing benefit and expense processes, engage early with payroll software providers, and consider voluntary payrolling of BiKs during 2026/27 where systems and resources allow.
"Early preparation should help minimise disruption and support a smoother transition when the new regime becomes standard practice."
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