Payrolling benefits in kind: what changes for employers from April 2027

Written by Alexandra Applin

Payroll Manager

Updated 3 November 2026 Last reviewed 30 October 2026 8 min read Editorial policy

From 6 April 2027, employers must report company cars, car fuel, vans, van fuel and medical benefits through payroll in real time instead of on a P11D. Most remaining benefits follow from 6 April 2028, while employer provided loans and living accommodation stay outside for now.

If the words “P11D season” make you wince, there’s some good news on the way. From 6 April 2027^[1], the way employers report and tax benefits in kind is changing, and for most businesses the July paperwork rush will gradually become a thing of the past.

The changes are coming in two phases, so it’s worth knowing what happens in each one and when. That way, nothing catches you out, and your team isn’t left wondering why their payslips suddenly look different.

What does payrolling benefits in kind mean?

Payrolling benefits in kind means adding the cash equivalent of a non cash benefit, like a company car or private medical insurance, to an employee’s taxable pay each pay period. Income tax and employer Class 1A National Insurance are then worked out and reported in real time through your payroll, rather than after the end of the tax year.

At the moment, most businesses report benefits once a year on a P11D form, and pay Class 1A National Insurance on them in July. From April 2027, phase 1 benefits will be reported each pay period through your Full Payment Submission (FPS)^[2] instead.

You’ll still need to file P11Ds and a P11D(b) for the 2026/27 tax year as normal, by 6 July 2027^[4].

The timeline at a glance

Tax year from	What’s happening	Benefits included	How they’re reported	What about P11Ds?
6 April 2026	Current rules	Any benefits you’ve registered to payroll voluntarily	Through payroll (FPS) for registered benefits	Still needed for anything not payrolled
6 April 2027	Phase 1 (mandatory)	Company cars, car fuel, vans, van fuel and medical benefits	Through payroll (FPS), with Class 1A NICs calculated in real time	No longer used for phase 1 benefits. Still needed for other benefits not payrolled
6 April 2028	Phase 2 (mandatory)	Most remaining benefits in kind, such as gym memberships and assets for personal use	Through payroll (FPS)	Only needed for excluded benefits
To be confirmed	Excluded for now	Employer provided living accommodation and beneficial loans	End of year reporting, or voluntary payrolling	Still used for these benefits unless payrolled voluntarily

Source: HMRC policy paper, mandatory reporting of benefits in kind in Real Time Information from April 2027^[1].

Which benefits are included in phase 1?

Phase 1 focuses on the most common employee benefits. If you offer any of the following, you’ll need to payroll them from 6 April 2027:

Company cars and car fuel. The taxable value is still based on the car’s list price and CO2 emissions^[5]. The difference is that it’s now spread across each pay period during the year.
Company vans and van fuel. The standard flat rate van benefit^[6] still applies where the van is available for private use (beyond commuting and insignificant personal use). Again, the value is spread across each pay period.
Medical benefits. This includes private medical insurance and other employer provided medical benefits^[7].

What isn’t included yet?

Everything else (gym memberships, for example) moves across in phase 2 from April 2028. Until then, you can either keep reporting those benefits on a P11D or choose to payroll them voluntarily.

Employer provided living accommodation and beneficial loans are excluded from both phases for now^[1], and the government will confirm when they’ll come in. In the meantime, you can keep reporting them on a P11D, or register to payroll them voluntarily.

What happens to P11D and P11D(b) forms?

Payrolling benefits will eventually mean the end of the P11D for most employers, but it’s not quite time to say goodbye. Because P11Ds are filed after the end of the tax year, there will be a few years where the old and new systems overlap.

Here’s how it’s likely to look:

July 2027: You’ll file P11Ds and a P11D(b) for the 2026/27 tax year as normal.
July 2028: You’ll file P11Ds for 2027/28 for any benefits that weren’t payrolled, such as phase 2 benefits, loans and accommodation.
July 2029 onwards: P11Ds should only be needed for benefits outside mandatory payrolling, such as accommodation and beneficial loans, unless you’ve chosen to payroll them.

Class 1A National Insurance is changing too. For payrolled benefits, it will be calculated in real time and paid along with your regular PAYE payments^[2], rather than in one lump sum in July. Over time, that should even out your cash flow.

There’s one thing to plan for, though. In 2027/28 you’ll pay Class 1A twice over: the July 2027 bill for 2026/27 benefits, plus real time Class 1A on phase 1 benefits from April 2027. If you have a large car fleet or a generous medical scheme, it’s worth budgeting for that now.

What will your employees notice?

Your employees will see their benefits shown as taxable pay on their payslips, and the tax on them deducted through payroll each pay period.

At the moment, tax on benefits is usually collected by HMRC reducing the employee’s tax code. To avoid people being taxed twice, HMRC will remove phase 1 benefits from tax codes^[1] before 6 April 2027. For most people, this means that overall they’re paying the same tax on the same benefit, just collected in a different way.

That said, some employees may notice a difference in their take home pay, for example if their benefits have changed, or if their tax code is still collecting an underpayment from a previous year. A quick heads up before April will save a lot of confused questions later on.

First year penalties: what you need to know

HMRC knows that the first year of any big change rarely goes perfectly. For the 2027/28 tax year, it won’t charge penalties for non deliberate inaccuracies^[1] in your payrolled benefits reporting. So if you make an honest mistake, you can correct it through a later FPS.

There are a couple of limits to that, though. The easement doesn’t cover deliberate non compliance, and normal penalties and interest for late filing or late payment of RTI returns still apply.

What employers need to do now

April 2027 will come around faster than you think, so it’s worth getting your payroll, finance and HR teams working together now. Here’s a checklist to help you get started.

1. Audit your current benefits

List everything you currently offer and sort it into phase 1, phase 2 and excluded benefits. That gives you a clear picture of what needs to change, and when.

2. Check your payroll software is ready

Your payroll software will need to calculate benefit values each pay period, work out Class 1A National Insurance in real time and send the new benefit information through your FPS. If you’re not sure your current system can do this, ask your provider to talk you through it.

3. Talk to your benefit providers

Many benefit providers only send a valuation once a year. You’ll need that information earlier and more often, so it can go through payroll during the year. Get in touch with your providers now to agree how and when they’ll send it.

4. Register if you want to payroll other benefits

You don’t need to register to payroll phase 1 benefits. But if you want to voluntarily payroll other benefits, including loans and accommodation, you’ll need to register with HMRC. Registration opens in November 2026^[1] and closes on 5 April 2027, and HMRC recommends signing up as soon as it opens.

5. Talk to your employees

Finally, and perhaps most importantly, tell your people what’s changing. Explain that their benefits will appear as taxable pay on their payslips from April 2027, and that their tax codes will be adjusted, so there are no surprises when that first payslip lands.

Frequently asked questions about payrolling benefits in kind

Do you have to payroll benefits in kind?

From 6 April 2027, yes, for company cars, car fuel, vans, van fuel and medical benefits. Most other benefits follow from 6 April 2028. Until then, payrolling remains voluntary for those other benefits.

Will payrolling benefits in kind be mandatory from April 2027?

Yes, for phase 1 benefits: company cars, car fuel, vans, van fuel and employer provided medical benefits. Most remaining benefits become mandatory from 6 April 2028.

Do I need to register for payrolling benefits in kind?

Not for phase 1 benefits. You only need to register if you want to voluntarily payroll other benefits, such as loans and accommodation. Registration opens in November 2026, and the deadline is 5 April 2027. You can register using the online payrolling service^[3] via your HMRC Online Services account.

What are the changes to payrolling benefits in kind?

The main change is a move from annual reporting on P11Ds to reporting in real time through payroll. The cash value of benefits is added to taxable pay each pay period, and income tax and Class 1A National Insurance are calculated and reported as you go.

What are the payroll changes for 2026/27?

Reporting for 2026/27 stays the same, so it’s really a preparation year. Use it to get your software ready, agree data deadlines with your benefit providers and let your employees know what’s coming.

Do I still need to file a P11D?

Yes, for now. You’ll file P11Ds for 2026/27 as normal by 6 July 2027, and for any non payrolled benefits in 2027/28 by July 2028. After that, P11Ds should only be needed for benefits outside mandatory payrolling, such as beneficial loans and accommodation, unless you payroll them voluntarily.

Sources

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