If your business provides company cars, private medical insurance or other benefits to employees, the way some of those benefits are reported to HMRC is changing.
From 6 April 2027, the first group of benefits will have to be reported through payroll as they are provided, rather than being dealt with mainly through the annual P11D process after the tax year has ended.
For employers, the biggest change is not the tax itself. It is the timing. Information that may currently be gathered once a year will increasingly need to reach whoever runs your payroll throughout the year.
How does it work now?
If you do not already payroll a particular benefit, you will normally report it to HMRC after the end of the tax year. For example, benefits provided during 2026/27 may need to be reported on forms P11D and P11D(b) by 6 July 2027.
The employee then pays the Income Tax due on the benefit, while the employer pays Class 1A National Insurance where required. That makes benefits reporting largely an annual exercise for many small employers. From April 2027, that starts to change.
Which benefits move into payroll first?
The first phase covers company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most other benefits are expected to follow from April 2028. Employer-provided loans and accommodation are being treated separately for the time being.
So this is not a case of every P11D disappearing overnight. The change is being introduced in stages.
Does payrolling a benefit mean the employee pays more tax?
Not simply because it is being put through payroll. A taxable benefit is already taxable. What changes is when the tax is dealt with.
Suppose your company pays £1,200 for an employee's private medical insurance for the year. Under the annual P11D approach, the £1,200 benefit is reported after the end of the tax year. Under payrolling, the annual amount may instead be spread across the employee's pay during the year.
If the employee is paid monthly, £1,200 divided by 12 gives £100 per month. The employee has not received an extra £100 of salary. The payroll simply includes £100 of taxable benefit each month so the related Income Tax can be collected as the year goes along.
From April 2027, the employer's Class 1A National Insurance for the benefits included in the first phase will also move into real-time reporting. The rates themselves can change from one tax year to another, so employers should refer to HMRC's current National Insurance rates rather than relying on an old article or payroll calculation.
Why does this matter to a small employer?
Because information that once had months to reach your accountant or payroll provider may soon be needed for the next payroll.
Imagine you provide private medical insurance. At the moment, you may send the annual figures to your accountant after the tax year has finished. From April 2027, if an employee joins the medical scheme in September, whoever runs payroll needs to know. If somebody leaves the scheme, payroll needs to know. If the cost changes, that information may need updating.
The same applies to company cars and the other benefits included in the first phase. The practical challenge is making sure those changes reach payroll at the right time.
Start by listing the benefits your business provides
You do not need to make this complicated. Write down everything the company provides to employees or directors in addition to ordinary salary. That might include company cars, fuel, vans, private medical insurance, loans, accommodation, subscriptions and other expenses or benefits paid by the company.
You can then work out which of those benefits is affected from April 2027 and which will continue under a different process for now. A business providing one company car may have very little to change. A business with several employees, vehicles and different benefits may need a more organised process.
Make sure whoever runs your payroll actually receives the information
If an accountant or payroll bureau runs your payroll, they will not automatically know that you have changed somebody's company car or added a new employee to the medical scheme. Someone in the business needs to tell them.
That could be as simple as sending a monthly confirmation of any changes. For a larger payroll, you may want a simple list of employees and the benefits each person receives. The important thing is deciding how this will work before the information becomes time-sensitive.
Check that your payroll software or provider will be ready
Payroll software providers are also preparing for the changes. If you run payroll yourself, check what your software provider is doing before April 2027. If somebody else runs payroll for you, ask how they plan to deal with the new reporting.
You do not need to understand the technical workings of the payroll software. You do need confidence that the benefits your company provides can be reported correctly.
Your employees may notice the difference
Employees should also understand that payrolling can change how the tax connected with a benefit appears during the year. Instead of much of the tax being dealt with later through P11Ds and PAYE coding, the tax becomes more closely connected with the payroll in which the benefit is being provided.
That can make the effect on take-home pay more noticeable. It is better to explain that before somebody receives a payslip they were not expecting.
What should employers check before April 2027?
Between now and April 2027, check which benefits your business provides, which employees receive them, which benefits are included from April 2027, where the information comes from, who will tell payroll when something changes, whether your payroll software or provider will be ready, and whether affected employees need an explanation before the change begins.
HMRC is still developing some of the detailed guidance, so more information will appear before April 2027. The main thing is not to leave the first conversation about this until the April payroll is already being prepared.
The move away from annual P11D reporting does not make benefits in kind disappear. It moves much more of the work into the normal payroll cycle.
If Thames Williams runs your payroll, or you would like help understanding how the change affects your business, our payroll service can help.
