Mandatory Payrolling of Benefits in Kind from 2027

From 6 April 2027, employers must report company cars, car fuel, vans, van fuel and private medical benefits through payroll instead of relying on the year-end P11D route. Small employers need to check their software, gather their benefit details this winter and warn staff that payslips will look different. This guide sets out what to do, in order, for a business without an HR department.

Key takeaways

• Mandatory payrolling is being phased in, beginning 6 April 2027 with cars, fuel, vans and medical benefits.
• Most other benefits are planned to follow later, while loans and accommodation are expected to stay voluntary.
• Voluntary registration reopens in November 2026 for benefits outside the first phase.
• Class 1A National Insurance on voluntarily payrolled benefits must also be payrolled in real time from 6 April 2027.
• Employees should hear about the change before their first April 2027 payslip.

What does payrolling a benefit mean?

Payrolling a benefit means adding its taxable value to an employee's pay each pay period, so the tax is collected through PAYE as the benefit is enjoyed. The benefit is not paid in cash, but it raises the amount of pay that gets taxed. Today, many employers report benefits after the tax year on a P11D, and HMRC collects the tax by adjusting the employee's tax code.

HMRC's guidance on mandatory payrolling says the change "will now be phased in from 6 April 2027", and it has been updated several times during 2026. Check it again before you finalise anything.

What moves when: phase by phase

Bodies including the Chartered Institute of Taxation report the next phase as planned for April 2028. Treat that as a working date, not a certainty, until HMRC confirms the details.

A small employer's action plan

1. List every benefit by employee. Include directors. Note what each benefit is, who gets it and when it started.
2. Ask your payroll software provider. Confirm in writing that it will support the new FPS benefit reporting from April 2027. If your payroll is run for you, ask your bureau or accountant.
3. Gather the valuation inputs. For cars, that means list price, CO2 emissions, fuel type and dates. Payroll cannot start with missing data.
4. Decide about other benefits by early 2027. Voluntary registration reopens in November 2026. Payroll them only if the simplicity is worth it, and check the current GOV.UK payrolling guidance.
5. Finish the old process. Your 2026/27 benefits still follow the existing year-end route, so do not stop collecting those records.
6. Tell your staff. Write to them in February or March so that a changed payslip does not come as a surprise.

Worked example: one company car

"Hartwell Joinery Ltd" is an illustrative example, not a real company, and the figures are invented. It has a site manager, Sam, with a company car whose taxable value for the year is £4,800. Sam pays basic rate tax at 20%.

Under payrolling, around £400 is added to Sam's taxable pay each month (£4,800 divided by 12). Sam's cash pay is unchanged, but about £80 more income tax comes out of each month's pay. Over a full year, that is £960, which is the same order of tax that would be due on this benefit through a tax code. What changes is visibility: Sam sees it each month, and any mid-year change to the car can be dealt with sooner.

For the company, the job moves from a once-a-year P11D to data that has to be right from the first April payroll. If Sam's car is replaced in July, the payroll needs updating then, rather than waiting until the following summer. That is the real workload shift: a little work often, in place of a lot of work once.

If your only benefit is a single private medical policy, the job is smaller still, but the principle is the same. You need each employee's cost from the provider before the first April payroll, and a named person who tells payroll when someone joins or leaves the policy. Leavers are the detail most likely to be missed, because the insurer and the payroll are usually dealt with separately. A simple shared list of who has which benefit, updated whenever anything changes, prevents most errors.

Common mistakes

• Assuming your software will sort it out. It calculates from whatever you enter, so a wrong list price means a wrong payslip every month.
• Forgetting directors. A company car for an owner-director counts. Read our guide to director mileage and company cars.
• Dropping P11Ds too early. Benefits you do not payroll can still need reporting after the end of the tax year.
• Forgetting Class 1A. Payrolling changes how employer National Insurance on benefits gets reported, so budget for it. Check the current rate on GOV.UK.
• Saying nothing to staff. Unexplained payslip changes create queries in the first month. Our guide to payslips and RTI reporting gives useful background.

How we can help

We run fixed-fee payroll for small employers, from £25/month per employee, and can review your benefits list ahead of April 2027. See our payroll service, check our pricing, or contact us with the list of what you provide.