What is changing and when
Today, most benefits in kind are reported once a year on P11Ds by 6 July, with employees paying the tax through adjusted tax codes a year in arrears and employers settling Class 1A NI by 22 July. From 6 April 2027, phase 1 makes payrolling mandatory for company cars, car fuel, vans, van fuel and medical or dental cover. Phase 2 from April 2028 sweeps in most remaining benefits. Only employment related loans and living accommodation can remain on an annual return, and payrolling them stays voluntary.
How payrolling actually works
Payrolling spreads the cash equivalent of a benefit across the year. A £3,600 medical policy adds £300 a month to taxable pay, the employee pays tax on it in real time and their tax code stays clean, no more surprise code adjustments collecting last year's benefit. The benefit value is reported on every FPS, and from 2027 the employer's Class 1A NI at 15% is calculated and paid through the same cycle rather than in a single July payment.
Why employers should register early
You can already payroll most benefits voluntarily by registering with HMRC before the start of the tax year you want it to apply. Registering for 2026/27, or at latest 2027/28, gives you a dress rehearsal while the P11D safety net still exists: you learn the data flows, employees get used to the payslip change, and your software settings are proven before the mandatory regime removes the margin for error. Late discovered errors under the mandatory regime will mean amended FPS submissions rather than a quiet P11D correction.
Getting the benefit values right
Payrolling does not change how benefits are valued, only when they are taxed. Company car values still depend on list price and CO2 based percentages, with electric cars remaining heavily favoured. Medical benefit equals the premium paid. The discipline that changes is timing: joiners, leavers and mid year benefit changes must be recalculated promptly because the remaining value has to be spread over the remaining paydays. A car returned in month 3 that keeps being payrolled until month 12 is a real and messy overcharge.
What to do during 2026/27
List every benefit you provide and who receives it. Check your payroll software supports payrolling and real time Class 1A. Decide whether to register voluntarily for a transition year. Budget for the cash flow shift when Class 1A moves from an annual July payment to monthly. Brief employees that their payslips will change but their overall tax will not increase because of payrolling itself. And if you provide loans or accommodation, diarise that those still need a year end return. Our guides to P11Ds and employer NI cover the surrounding mechanics.
Where to get help
The 2027 change is the biggest payroll compliance shift since RTI in 2013, and unprepared employers will feel it in April 2027 payslips immediately. Our payroll service already runs payrolled benefits for clients and can manage your registration, employee communications and the first live year end to end.
Frequently asked questions
When does payrolling benefits become mandatory?
From 6 April 2027 for company cars, car fuel, vans, van fuel and employer provided medical benefits. Most other benefits become mandatory from April 2028. Employment related loans and living accommodation stay outside mandatory payrolling.
How does payrolling a benefit work?
The annual cash equivalent of the benefit is divided across the year's pay periods and added to taxable pay each payday, so the employee pays the tax gradually through their tax code free of surprises, and the values are reported on each FPS.
What happens to Class 1A National Insurance?
It moves into real time. Instead of one payment by 22 July after the tax year, employers will calculate and pay Class 1A at 15% through the payroll cycle, a significant cash flow change worth budgeting for now.