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If your business provides benefits such as company cars, vans, private medical insurance or fuel benefits, an important payroll change is on the horizon.
From 6 April 2027, many employers will be required to report certain benefits in kind through payroll as they’re provided, rather than reporting them after the end of the tax year using P11D forms. HMRC has confirmed that the new rules will be introduced in phases, giving employers time to adapt — but preparing early will make the transition much smoother.
What’s changing?
At the moment, most employers report taxable benefits in kind after the end of each tax year using P11D and P11D(b) forms. Employees then pay any Income Tax due through adjustments to their PAYE tax code, often months after they’ve received the benefit.
The aim of the new system is to simplify benefits reporting and ensure tax is collected more accurately throughout the year.
From April 2027, that process begins to change. Instead of reporting certain benefits annually, employers will report them through payroll each pay period using the Full Payment Submission (FPS). This means employees will generally pay the correct Income Tax as they receive the benefit, rather than through later tax code adjustments.
HMRC has confirmed a phased introduction. From 6 April 2027, mandatory payrolling will apply to:
- company cars
- car fuel
- vans
- van fuel
- employer-provided medical benefits.
From April 2028, most remaining taxable benefits in kind will also move into mandatory payrolling. For the time being, employment-related loans and living accommodation remain outside the mandatory system. These can continue to be reported on P11Ds or be payrolled voluntarily.
It’s important to remember that P11Ds aren’t disappearing immediately. They will still be required for the 2025/26 and 2026/27 tax years. During 2027/28, many employers will operate a hybrid system, payrolling some benefits while continuing to report others through P11Ds.
What does this mean for your business?
If your business provides company cars, vans, fuel or private medical cover, these changes are likely to affect you from the first day of the new regime. For many smaller businesses, this may be as simple as a director’s company car or private health insurance policy. Even if you only provide one taxable benefit, you’ll still need to ensure your payroll processes are ready.
This is more than an administrative change. Employers will need to review how benefits are valued, reported and communicated throughout the tax year. You’ll need to:
- calculate the taxable value of benefits throughout the year
- spread those values correctly across payroll periods
- update payroll whenever an employee’s benefits change
- report the information accurately through each payroll submission.
There are financial implications too. For mandatory benefits, Class 1A National Insurance will move from an annual payment to an in-year payroll liability. During the transition, some employers may temporarily operate both the old and new systems, so it’s worth considering the potential cash-flow impact well in advance.
Your employees may also notice changes to their payslips, tax codes and take-home pay. Explaining the changes before April 2027 can help avoid confusion and reduce unnecessary payroll queries.
HMRC has indicated it will take a light-touch approach to genuine mistakes during the first year of implementation. Even so, preparing early is far preferable to correcting payroll errors after they’ve occurred.
What should you do now?
Although the changes don’t take effect until April 2027, now is the ideal time to start preparing. We recommend that employers:
- Review all employee benefits and identify which fall within the first phase of mandatory payrolling.
- Speak to your payroll provider — or to us if we manage your payroll — to ensure your systems will support the new reporting requirements.
- Assess the cash-flow impact of moving to in-year Class 1A National Insurance payments.
- Plan how you’ll communicate the changes to employees before April 2027.
- If you provide employment-related loans or living accommodation, consider whether voluntary payrolling would simplify your reporting. The registration service opens in November 2026, with a deadline of 5 April 2027.
- Put processes in place to estimate benefit values where necessary and make any required year-end adjustments.
Frequently asked questions
Which benefits will be payrolled from April 2027?
The first phase of mandatory payrolling applies to company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most remaining taxable benefits are expected to move into the system from April 2028.
Will P11Ds disappear completely?
Not immediately. P11Ds will still be required for the 2025/26 and 2026/27 tax years. During 2027/28, many employers will payroll Phase 1 benefits while continuing to report other benefits using P11Ds. Employment-related loans and living accommodation will also remain reportable through P11Ds for the time being.
Does this affect directors?
Yes. Many owner-managed businesses provide benefits such as company cars or private medical insurance to directors. If those benefits fall within Phase 1, they’ll also need to be reported through payroll from April 2027.
Will I need to update my payroll software?
Most employers will need payroll software that supports mandatory payrolling of benefits in kind. If your payroll is managed by an accountant or payroll provider, they’ll usually ensure the correct systems are in place.
How will this affect employees?
Employees will generally pay Income Tax on benefits as they receive them, rather than through later adjustments to their tax code. During the transition, some employees may notice changes to their payslips or tax codes, so explaining the new approach in advance can help manage expectations.
Do I need to register with HMRC?
No. Mandatory payrolling doesn’t require advance registration with HMRC. Registration is only necessary if you choose to voluntarily payroll benefits that remain outside the mandatory regime, such as employment-related loans or living accommodation.
Preparing for the changes
Mandatory payrolling is one of the biggest changes to employee benefits reporting in recent years. While April 2027 may seem some way off, businesses that prepare early will find the transition far easier.
Not sure whether these changes affect your business?
Whether you employ one person or a growing team, our payroll specialists can review your employee benefits, explain which rules apply and make sure your payroll processes are ready well before April 2027. We’ll help you stay compliant, minimise disruption and ensure the transition is as smooth as possible.