From 6 April 2027, employers must report Income Tax and Class 1A National Insurance on company cars, car fuel, vans, van fuel and employer-provided medical or dental benefits in real time through payroll (the Full Payment Submission), replacing the annual P11D for those benefits. Most other benefits in kind follow from 6 April 2028. This is HMRC-confirmed and phased, so every UK employer and limited-company director needs a plan.
Below we set out exactly what changes, what stays the same, the soft-landing penalty relief for 2027/28, a worked example using the 15% Class 1A rate, the one-off July 2027 cash-flow trap and a preparation checklist.
What is changing with payrolling benefits in kind from April 2027?
Today, most employers report benefits in kind once a year on a form P11D, with the employer's Class 1A National Insurance declared on a P11D(b). Under the new rules, reporting Income Tax and Class 1A on most benefits and taxable expenses through payroll software becomes mandatory, phased over two tax years.
The reporting route is the Full Payment Submission (the same real-time route you already use to report pay each period). Payrolled benefits move off the annual P11D, and the Class 1A on those benefits is reported through the FPS rather than on a separate P11D(b). If you want the wider picture on how benefits are currently taxed, see our guide to benefits in kind and the P11D.
Which benefits must be payrolled in Phase 1 (6 April 2027)?
Phase 1 covers the most common taxable benefits provided by UK employers. From 6 April 2027 you must payroll:
- Company cars and car fuel
- Vans and van fuel
- Employer-provided medical and dental benefits or insurance
If your company provides cars, our posts on company car tax for 2026-27 and electric company car BiK explain how the taxable value is worked out. Directors weighing a company car against claiming mileage should also read company car vs mileage for a limited company.
Which benefits follow in Phase 2 (6 April 2028)?
Phase 2 brings most other benefits in kind into mandatory payrolling from 6 April 2028. Two significant categories are left out of the mandate entirely (covered below). Here is how the two phases compare.
| Phase | Effective from | Benefits that must be payrolled |
|---|---|---|
| Phase 1 | 6 April 2027 | Company cars, car fuel, vans, van fuel, employer-provided medical and dental benefits/insurance |
| Phase 2 | 6 April 2028 | Most other benefits in kind and taxable expenses not already payrolled |
| Excluded | Stays voluntary | Employment-related loans and living accommodation (P11D or voluntary payrolling) |
How does P11D reporting compare with payrolling through the FPS?
The practical difference is timing and route. Under the P11D, tax on a benefit is collected after the year end through a change to the employee's tax code, and the employer's Class 1A is paid in one July lump sum. Under payrolling, the taxable value is fed through each pay run so the employee's Income Tax comes off in real time, and the Class 1A is reported via the FPS.
| Feature | P11D (old way) | Payrolled / FPS (new way) |
|---|---|---|
| Reporting form | Annual P11D and P11D(b) | Full Payment Submission each pay period |
| Employee Income Tax | Collected later via a tax-code adjustment | Collected in real time across pay periods |
| Employer Class 1A NIC | Declared on P11D(b), paid in one July sum | Reported through the FPS in real time |
| Deadline | File by 6 July; Class 1A cleared by 22 July | Aligned to your normal RTI reporting |
| From 6 April 2027 | Only for excluded benefits | Default for Phase 1 benefits |
Are loans and living accommodation included in the mandate?
No. Employment-related loans (interest-free or low-interest beneficial loans) and living accommodation are excluded from the mandate. You can keep reporting these on a P11D, or you can payroll them voluntarily.
The service to voluntarily payroll loans and accommodation for 2027/28 goes live in November 2026, and the deadline to register is 5 April 2027. If you miss that window you simply continue with the P11D for those two categories, so there is no penalty for leaving them as they are.
Do you need to register to payroll the mandated benefits?
No registration is required for the mandated Phase 1 benefits. From April 2027 payrolling those benefits becomes the default, so there is no form to submit to opt in. Registration only matters if you choose to voluntarily payroll the excluded loans and accommodation (deadline 5 April 2027), or if you want to start voluntarily payrolling other benefits before the mandate bites. Voluntary payrolling already exists today: you can register before the start of a tax year to payroll most benefits now, which is a sensible way to rehearse the process early.
What penalty relief applies during the 2027/28 soft landing?
HMRC is giving a soft landing for the first year. For 2027/28, HMRC will not charge inaccuracy penalties on mandatory-payrolling RTI errors unless the error is deliberate. Standard inaccuracy penalties then apply from 2028/29.
Note the limit of this relief: late-filing and late-payment penalties still apply throughout. The concession is only about accuracy of the figures, not about missing deadlines, so keep your RTI submissions and payments on time from day one.
How much Class 1A National Insurance will you pay?
Class 1A National Insurance is an employer-only charge on the taxable value of most benefits in kind. The rate for 2026/27 is 15% (also 15% for 2025/26).
Worked example. A director or employee has a company car with a taxable benefit value of £6,000 and employer-paid medical cover of £1,200, a total benefit in kind of £7,200.
- Class 1A National Insurance = £7,200 x 15% = £1,080 (paid by the employer).
- Under the old P11D system, that £1,080 is paid to HMRC in a single lump by 22 July after the tax year.
- Under mandatory payrolling, the £1,080 Class 1A is reported through the FPS across the pay periods in real time rather than as a July lump sum.
- The employee's Income Tax on the £7,200 is collected in real time across each pay run, instead of through a tax-code adjustment, so take-home pay changes once payrolling starts.
To see how real-time deductions affect a payslip, try our take-home pay calculator.
What is the July 2027 cash-flow trap?
There is a one-off double obligation in July 2027. In that month you will:
- Pay Class 1A on 2026/27 benefits under the old P11D(b) system (file P11D and P11D(b) by 6 July, with Class 1A cleared by 22 July), and
- Report and pay real-time Class 1A on 2027/28 benefits through the FPS.
For a business with material car or medical benefits, that overlap can be a meaningful cash outflow in a single month. Forecast it now so it does not catch you out. If you are still setting up PAYE processes, our guide to running payroll for a UK company and the PAYE and employers' payroll guide for 2025-26 are good starting points.
How should employers prepare for mandatory payrolling?
You have time, but the work is best done well before April 2027. A practical checklist:
- Audit your benefits. List every benefit currently on the P11D and flag which fall into Phase 1 (cars, fuel, medical/dental) and Phase 2.
- Confirm your payroll software is compatible. Check with your provider that it can report benefits through the FPS, and upgrade if needed.
- Review your data flows. Plan how mid-year changes (joiners, leavers, cars swapped, benefit values changed) will feed into payroll in real time.
- Brief your employees. Explain that tax on benefits will now come off in real time, so take-home pay will change even though their overall tax bill does not.
- Plan cash flow. Model the July 2027 overlap and the shift to real-time Class 1A reporting.
- Decide on loans and accommodation. If you provide these, choose whether to payroll them voluntarily (register by 5 April 2027) or keep them on the P11D.
If you run a limited company and want this handled properly, see how we support limited companies, or book a free call with Zmartly and we will map out your move to payrolled benefits.
Frequently asked questions
Do I still need to file a P11D after April 2027?
Only for benefits outside the mandate. From 6 April 2027 the Phase 1 benefits (cars, car fuel, vans, van fuel and employer medical or dental cover) move off the P11D and are reported through the Full Payment Submission. Employment-related loans and living accommodation can stay on the P11D, and most remaining benefits join the mandate from 6 April 2028.
Will payrolling benefits reduce my employees' take-home pay?
Take-home pay will change because Income Tax on the benefit is collected in real time across each pay run rather than later through a tax-code adjustment. The total tax an employee pays on the benefit is the same; only the timing changes, so it is worth briefing staff before the first payrolled pay run.
What is the Class 1A National Insurance rate for a payrolled benefit?
Class 1A National Insurance is 15% for 2026/27 and is an employer-only charge on the taxable value of the benefit. For example, a £7,200 total benefit (a £6,000 company car plus £1,200 medical cover) gives Class 1A of £1,080, now reported through the FPS instead of paid as a single July lump sum.
Do I need to register to payroll company cars and medical benefits?
No. From April 2027 payrolling the mandated Phase 1 benefits becomes the default, so there is no registration to complete. Registration only applies if you choose to voluntarily payroll the excluded loans and accommodation, for which the service opens in November 2026 with a 5 April 2027 deadline.
Sources
- GOV.UK: Payrolling: tax employees' benefits and expenses through your payroll
- GOV.UK: Expenses and benefits for employers (reporting and paying)
- GOV.UK: Reporting and paying expenses and benefits (P11D and P11D(b))
- GOV.UK: National Insurance rates and categories (Class 1A)
- GOV.UK: Expenses and benefits, company cars
