10 min read
If your business offers perks like private medical insurance, a company car, or gym membership, the way you report and tax those benefits is changing. HMRC has been edging towards mandatory payrolling of benefits in kind for a while now, and the start date has shifted more than once. But where this is heading isn’t in doubt.
Reporting benefits through payroll in real time is becoming the norm, and the old P11D process is slowly being wound down. For most UK employers, this is more than something to file away for later attention.
It touches how your payroll runs each month, how much National Insurance you’re paying and when, and what your employees see coming off their pay. So let’s get into what’s happening, when it’s happening, and what you should be doing about it now.
What is ‘payrolling benefits in kind’?
Payrolling means including the taxable value of a benefit, such as a company car or health insurance, directly in an employee’s pay each period. Income tax is then collected through PAYE, spread across the year, rather than being adjusted later through a tax code change or a self assessment bill.
Right now, most employers still report benefits after the tax year ends, using a P11D for each employee and a P11D(b) to declare Class 1A National Insurance. Payrolling brings that reporting into real time instead.
Where things actually stand
There’s been a fair bit of confusion around dates, so here’s the current position.
- Mandatory payrolling was originally due to start in April 2026, but HMRC pushed this back to April 2027 to give employers and software providers more time to prepare.
- The rollout is now happening in phases rather than all at once. From April 2027, most common benefits, including things like private medical cover, will need to be payrolled.
- Employer provided loans and living accommodation are being held back from mandatory payrolling for now, though employers will be able to payroll these voluntarily once a separate registration route opens.
- P11Ds haven’t disappeared. You’ll still need to file them for benefits that remain outside the mandatory scope, and for earlier tax years that fall under the old rules.
- Unlike the current voluntary scheme, employers won’t generally need to register with HMRC before the mandatory rules apply from April 2027. Registration will still be needed for anyone choosing to voluntarily payroll loans or accommodation.
HMRC’s own guidance on the payrolling benefits and expenses service is worth bookmarking, as it’s being updated as details are confirmed: gov.uk guidance on paying employees’ expenses and benefits through payroll.
Why HMRC is making this change
It’s part of a broader push towards real time tax reporting, the same thinking behind Making Tax Digital and RTI payroll reporting. The idea is that employees pay tax on their benefits as they receive them, rather than facing a surprise tax code adjustment or an unexpected bill months later. For HMRC, it also means less reliance on paper based, after-the-fact reporting.
In theory, it’s simpler for everyone once it’s bedded in. In practice, getting there means a fair bit of preparation for employers.
What this means for your payroll
Even though the mandatory start date has moved, this isn’t something to leave until the last minute. Here’s what changes in practice.
- You’ll need to work out the cash equivalent value of each benefit at the start of the tax year, rather than waiting until year end.
- That value gets divided across your pay periods, so it needs to be built into your payroll run every month.
- If a benefit changes mid year, say an employee gets a different car, you’ll need to recalculate the taxable amount for the remaining pay periods.
- Class 1A National Insurance will be paid through payroll rather than as one annual lump sum, which changes your cash flow pattern across the year.
- Your payroll software needs to be capable of handling this. Not every system currently supports it well, so it’s worth checking with your provider.
Getting your business ready
Here’s a practical checklist to work through with your bookkeeper or accountant.
1. List every benefit you currently provide
Company cars, private medical insurance, gym memberships, health screening, and anything else that counts as a taxable benefit. You can check what counts using HMRC’s A to Z of expenses and benefits.
2. Check your payroll software
Speak to your provider about whether their system can calculate and apply benefit values within each pay run, and whether it’s ready ahead of April 2027.
3. Review your data flow
If benefit information sits in different systems, HR records, a fleet management platform, an insurance provider’s portal, you’ll need a reliable way to pull that data into payroll on a regular basis.
4. Think about employee communication
Payrolling your benefits changes what shows up on a payslip and how tax comes off. Employees will notice, so it’s worth explaining the change before it happens, not after they’ve already started asking questions.
5. Decide whether to start early
Some employers choose to payroll certain benefits voluntarily before it becomes compulsory, as a way of testing the process while the stakes are lower. It’s not for everyone, but it can smooth the transition considerably.
Don't leave it to the last minute
April 2027 might feel a long way off, but the businesses that struggle with changes like this are usually the ones who leave it until the deadline is nearly on top of them. Sorting out payroll data, checking your software can cope, and getting employees up to speed all take time. Rush it and mistakes creep in, and mistakes with tax are the last thing anyone needs.
How we can help
At Golding, we work with businesses across the UK to keep payroll and tax reporting accurate, compliant, and stress free. Whether you want help mapping out which benefits you provide, checking your payroll software is up to the job, or simply understanding what these changes mean for your specific business, we’re happy to talk it through.
Get in touch with our team to make sure you’re ready well before the rules land, not scrambling to catch up when they do.
Anthony Burrell is the Tax Director at Golding Accountancy, specialising in UK personal tax, compliance, and strategic tax planning. He works with business owners, landlords, and property investors across the UK, helping them navigate complex tax legislation while ensuring they remain compliant and tax-efficient. Outside the office, Anthony is a dedicated West Ham supporter and has been a season ticket holder for more than 40 years. He also recommends Dext to clients looking to simplify their bookkeeping and financial processes.
