Payrolling benefits in kind: key changes coming in April 2027 and April 2028
If you provide your staff with company cars, private medical cover, or any other perks, there’s a change on the way that’s worth knowing about now. HMRC is phasing out the old P11D process for most benefits in kind and moving everything onto real time payroll reporting instead.
This has been talked about for years, and pushed back more than once, but the dates are set now. Payrolling benefits in kind becomes mandatory from April 2027, rolled out in phases, with everything in place by April 2028.
That’s a fair bit to get your head around, so we’ve laid out exactly what’s changing, when each part kicks in, and what you should be doing between now and then to make sure your business isn’t scrambling when the deadlines actually arrive.
What does payrolling benefits in kind actually mean?
Right now, most employers report the value of employee benefits, things like company cars, private medical insurance, or gym memberships, once a year on a P11D form after the tax year ends. HMRC then adjusts the employee’s tax code to collect the tax owed, often months after the benefit was actually received.
Payrolling flips this around. Instead of waiting until year end, the cash equivalent value of the benefit is added to the employee’s pay each period, and tax is deducted through PAYE in real time, just like salary.
It’s simpler for the employee, since their tax code stops being altered for benefits already payrolled, and it gives HMRC a more accurate, up to date picture throughout the year. You can see how the current process works on GOV.UK’s guidance on payrolling employee benefits and expenses.
Some employers already do this voluntarily. What’s changing is that it’s becoming compulsory for almost everyone.
Why is HMRC making this change?
HMRC’s reasoning is that real time reporting closes the gap between when a benefit is provided and when tax is actually collected on it. It also removes a huge chunk of manual, once a year admin for payroll teams and should reduce the number of tax code errors employees currently experience. Whether it genuinely reduces admin or simply moves it earlier in the year is something payroll managers are still debating, but the direction of travel is clear.
The two phase timeline
HMRC isn’t switching everything on in one go. Instead, mandatory payrolling is being introduced in two stages.
Phase one: from 6 April 2027
From this date, payrolling becomes mandatory for the following benefits:
- Company cars
- Car fuel benefit
- Vans
- Van fuel benefit
- Employer provided medical and dental benefits
Income Tax and Class 1A National Insurance on these particular benefits will need to be reported and paid through payroll in real time, rather than via the annual P11D and P11D(b) process.
Phase two: from 6 April 2028
Most other taxable benefits in kind will then be brought into mandatory payrolling. Think along the lines of gym memberships, non cash vouchers, health screening, and most other perks employers commonly offer.
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What about loans and employer provided accommodation?
These two benefit types are staying outside the mandatory rules for now. Employers will be able to payroll them voluntarily if they choose, but there’s currently no confirmed date for when this becomes compulsory.
A P11D will still be needed for these where they’re not payrolled, so it’s worth keeping this in mind when you’re mapping out your transition plan. HMRC’s technical note on reporting benefits in kind in real time sets out the reasoning behind this exception in more detail.
What this means for employers
This isn’t just a payroll software update. It’s a genuine change to how and when you handle tax on benefits, and it touches several parts of the business.
- No more waiting for July: Class 1A NIC will be paid in real time rather than by the 6 July deadline following the tax year.
- No registration needed for most benefits: Unlike the voluntary scheme, you generally won’t need to formally register with HMRC to payroll the mandatory benefits, though loans and accommodation are the exception if you choose to payroll them voluntarily.
- P11Ds aren’t disappearing completely, yet: They’ll still be needed for 2026/27 and, depending on what you offer, parts of 2027/28, as well as for loans and accommodation going forward.
- Cash flow changes: Paying Class 1A NIC throughout the year rather than in one lump sum in July will affect how you budget for it.
- Payslips will need to be clearer. Employees will see the value of their benefits reflected in their pay each period, so communication matters.
Steps to prepare now
The window between now and April 2027 might feel generous, but payroll transitions rarely go smoothly if left until the last minute. Here’s what we’d suggest putting on your to do list.
- Review every benefit you currently provide and check which phase it falls into.
- Speak to your payroll software provider about their readiness and rollout timeline.
- Work out the cash equivalent values for each benefit and how they’ll be split across pay periods.
- Consider whether voluntary payrolling for loans or accommodation makes sense for your business.
- Plan for the cash flow impact of paying Class 1A NIC throughout the year.
- Brief your finance and HR teams early, since employees will likely have questions once their payslips start to change.
- Tell your affected employees.
Getting the timing right
It’s easy to underestimate how much groundwork sits behind what looks like a simple reporting change. Payroll systems need testing, data needs to be accurate, and staff need to understand what’s coming so there aren’t any unwelcome surprises once deductions start appearing on payslips. Employers who start preparing now, rather than in early 2027, will have a much smoother transition.
How Affinity Associates can help
We understand that navigating HMRC’s evolving rules on payrolling benefits in kind isn’t always straightforward, especially alongside everything else on a business owner’s plate. Our team keeps a close eye on these changes so you don’t have to, and we can help you review your current benefits offering, work out the right approach for your business, and make sure you’re fully prepared well ahead of the April 2027 and April 2028 deadlines.
Get in touch with our team to talk through what these changes mean for your business and how we can help you get ready.
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
