For decades, the way employers reported taxable perks, company cars, private medical cover, gym memberships, was the annual P11D, filed after the tax year ended. That era is coming to a close. HMRC is moving to mandatory payrolling of benefits in kind, and if you employ people and provide any taxable benefits, you need a plan before the deadline.
What "payrolling" a benefit actually means
Payrolling means putting the taxable value of a benefit through your payroll in real time, so the income tax is collected via PAYE each pay period rather than through a P11D and an adjusted tax code the following year. The employee pays the tax as they receive the benefit; you report it through your normal Full Payment Submission (FPS). It is already available voluntarily, many well-run payrolls have used it for years because it removes the post-year-end scramble.
The mandate: April 2027, not April 2026
HMRC originally announced that payrolling would become compulsory from April 2026. That date was pushed back: mandatory payrolling of most benefits in kind now applies from April 2027. From that point, the P11D will no longer be the route for the benefits that fall within scope, they must be payrolled. Two benefits sit outside the first phase and can still be reported another way for now:
- Employment-related loans (such as an overdrawn director's loan giving rise to a beneficial-loan charge); and
- Employer-provided living accommodation.
Everything else, cars, fuel, medical insurance, and the rest, is expected to be payrolled.
Class 1A National Insurance changes too
Today, employer Class 1A NIC on benefits is paid once a year after the P11D(b). Under mandatory payrolling, Class 1A is expected to be reported and paid through the payroll in-year alongside the tax. That is a cash-flow change as well as an admin one: the employer's NIC lands monthly rather than in a single July payment.
What employers should do now
April 2027 sounds distant, but the practical work starts a full tax year earlier, you register to payroll before the year begins, so the decision point is really before 6 April of the year you start. Sensible steps:
- Register to payroll voluntarily ahead of the mandate so your team learns the process on a year that isn't compulsory. You must register through HMRC's online service before the start of the tax year you want it to apply from.
- Check your payroll software handles benefit values and in-year Class 1A. Most modern packages do; older or manual set-ups may not.
- Value your benefits accurately. Getting the cash-equivalent wrong pushes the error into every payslip, not just one form.
- Tell your employees. Payrolled benefits change take-home pay and tax codes; a short explanation prevents a flood of queries.
Getting it wrong is more visible than it used to be
A mistake on a once-a-year P11D was a once-a-year problem. A mistake on a payrolled benefit repeats every pay run until it's caught. That is exactly why we cover benefit reporting inside our payroll service, the value, the coding and the Class 1A all reconcile before anything is filed. If you would like us to review your benefits and set up payrolling ahead of the mandate, book a call with our team.