Currently, most employers report benefits in kind annually on a P11D for each employee, with a P11D(b) covering the Class 1A National Insurance owed. Under the new regime, the taxable value of each benefit is reported through payroll during the tax year, using the Full Payment Submission (FPS) that already carries salary and PAYE data. Tax and Class 1A NIC are collected in real time, pay period by pay period, rather than settled after year end.
Phase 1: What Must Be Payrolled From April 2027
From 6 April 2027, the following benefits must be reported through payroll: company cars, car fuel, vans, van fuel, and employer-provided medical benefits. These are the most commonly provided benefits across the UK workforce, so the vast majority of employers will be affected from day one of the change. HMRC’s rationale is that these benefits have consistent, well-defined valuations that make real-time reporting workable.
Phase 2: April 2028
Most other taxable benefits move into mandatory payrolling from April 2028. That covers the wider spread of employer benefits like gym membership, subsidised meals, non-cash gifts above the trivial benefits limit, and similar items. Two benefits are staying outside the mandatory regime for the foreseeable future: employment-related loans and living accommodation. These will remain on P11D unless the employer opts to voluntarily payroll them (which requires an agreement with HMRC by 5 April 2027).
The Employee-Facing Change
Under the current P11D process, employees see the tax impact of their benefits through their PAYE tax code, spread across the year. Under payrolling, the tax is calculated on the cash equivalent of the benefit each pay period and deducted through payroll alongside salary tax. Employees will see the benefit tax on every payslip. This needs to be communicated properly, because the take-home pay impact is more visible even though the total tax paid is the same.
The Employer Cash Flow Impact
Currently, Class 1A National Insurance on benefits is paid annually, by 22 July following the end of the tax year. Under the new regime, Class 1A becomes payable in real time as benefits are reported through payroll. That accelerates the cash outflow substantially for employers with meaningful benefit costs. The total tax is unchanged, but the timing shifts by up to fifteen months, which is a genuine working capital consideration.
What Needs To Be In Place Before April 2027
Employers need to complete four preparation streams: audit which benefits are provided across the workforce, set up the data collection processes so benefit values are available to payroll in real time, confirm that payroll software will support the new FPS fields (HMRC’s final specifications go to software developers in the second half of 2026), and update employee communications so people are not surprised by the new payslip presentation. Employers should also decide whether to voluntarily payroll loans and accommodation, which requires the HMRC agreement by 5 April 2027.
P11D Is Not Dead
P11D and P11D(b) will still be required for the 2025/26 and 2026/27 tax years for all benefits, and from 2027/28 onwards for the loans and accommodation benefits that stay outside mandatory payrolling. Employers with company loans or provided accommodation will run both processes side by side. Our ecommerce payroll service handles the setup, the FPS submissions and the transition, so the switch to real-time reporting does not become a year-end mess.
