Mandated Payrolling Delayed: More Clarity or More Confusion?

The evolving landscape of payrolling taxable benefits

In the Spring 2025 tax update, HMRC announced a deferral of mandatory payrolling for taxable expenses and benefits until April 2027. While this delay captured headlines, questions remain whether stakeholders genuinely have greater clarity—or whether it simply postpones uncertainty and complexity.

Key facts at a glance

• Mandated payrolling now begins in April 2027 instead of 2026
• Voluntary payrolling has been in place for nearly a decade
• HMRC promises a phased approach, though exact details lack definition

The current state: Benefits and unresolved concerns

Payrolling benefits through the payroll in real time offers substantial advantages, especially for income tax collection. Yet several challenges persist, including real-time payment of Class 1A National Insurance Contributions (NICs) and cashflow impact.

A recurring pattern is evident: options introduced as voluntary by HMRC are often later mandated. This history sets clear expectations about the future direction of tax administration.

Challenges and key questions

Moving from a voluntary to a mandatory model surfaces a host of logistical and technical questions:
• What provisions will be made for annual, quarterly, or NIC-only payrolls?
• How will benefit-only payrolls (no salary, only benefits) be handled?
• What about complexities like the 50% overriding tax limit and possible underpayments?
• Will the deadlines for employees making good on benefits align (e.g., P11Ds by July 6 versus payroll corrections by June 1)?
• How are errors and post-year-end corrections managed?
• Will PAYE-modified payrolls (e.g., appendices 6 and 7A) receive clear treatment?
• What is the approach to potential penalties when things go wrong?

Such questions currently lack complete answers, presenting ongoing headaches for businesses, agents, and payroll processors.

Not all employers fit the same model

HMRC’s approach draws parallels with previous Real Time Information (RTI) implementation, in which differences among employers were underestimated. Payroll is not always handled in-house—outsourcing to bureaus, agents, or accountants is common, often with significant communication gaps and operational intricacies.

“Collecting the data is a challenge in itself,” notes a payroll consultant. “If you struggle to get basic information from clients, adding payrolled benefits into the mix compounds the complexity.”

Official responses and stakeholder engagement

According to HMRC’s 28 April 2025 Technical Note, the added preparation time is meant for employers, payroll professionals, agents, and software providers to gear up for the change. But careful reading reveals:

“HMRC recognises” – signifying an acknowledgment that payrolling is more complex than initially thought.

“HMRC will continue to engage” – a practical admission that ongoing feedback is essential, as many operational specifics remain in flux.

Feedback from the payroll community underscores both skepticism and pragmatism:

• "Oops, we had no idea it was so complicated. Let us try to figure out what we're doing and get back to you."
• "Payroll was once straightforward. Not anymore. For small practices facing additional challenges like IR35 or Making Tax Digital, the regulatory burden is becoming overwhelming."

Essential steps for businesses now

The delay to April 2027 is not just a pause—it’s an opportunity to:

1. Review your payroll structures and outsourcing arrangements 2. Open a dialogue with your agent/bureau about data readiness and compliance gaps 3. Begin early discussions with software providers for support and updates 4. Keep abreast of HMRC guidance and voices from professional bodies

Preparation is key. With additional time, firms are encouraged to lay the groundwork for compliance before the new rules take full effect.

The way forward: Stay engaged and informed

While the deferral offers a temporary relief, the shift to mandatory payrolling is now certain. All parties should treat this as a transition period to address unanswered questions, engage with HMRC, and test processes well before 2027.

Greater clarity is possible—if stakeholders actively participate in ongoing consultation and readiness planning.

Stay informed and proactive: The more prepared your business, the smoother the transition will be.