Payroll benefits in kind is the practice of taxing non-cash perks – company cars, private medical cover, vans – through the payroll in real time, rather than reporting them once a year on a P11D form. From 6 April 2027, this becomes compulsory for most employers, starting with the benefits businesses provide most often. HMRC first proposed mandatory payrolling for April 2026, delayed it to April 2027, reconfirmed that date in interim guidance published alongside the 2025 Autumn Budget, and in June 2026 announced a phased rollout rather than a single cut-off (gov.uk, 2026). For payroll teams, this is not a distant deadline. The first mandatory phase applies to the 2027/28 tax year, and the run-up starts now, while most employers are still filing P11Ds under the old system.
Employer Class 1A National Insurance – the charge on benefits in kind – stays at 15% for 2026/27, with no upper limit on the earnings it applies to (gov.uk). That cost does not change under mandatory payrolling. What changes is when and how it reaches HMRC: instead of one annual reconciliation each July, employers will report and pay tax and Class 1A NIC on affected benefits through every payslip.
This guide sets out which benefits are affected first, what registering with HMRC involves, and the payroll data employers should start collecting now.
Key takeaways
- Phase 1 from 6 April 2027: Company cars, car fuel, vans, van fuel and medical benefits move into mandatory payroll reporting.
- Phase 2 from 6 April 2028: Most other benefits follow – loans and accommodation stay voluntary for now.
- P11Ds do not disappear immediately: Employers still file them for 2026/27, and for any benefit outside the mandatory phases.
- Class 1A NIC stays at 15%: The rate is unchanged. It is the timing of payment that moves.
- Data readiness is the real risk: Benefit values held outside payroll systems need a home before real-time reporting starts.
Which benefits are affected from April 2027?
From 6 April 2027, payrolling becomes mandatory for five specific benefits: company cars, car fuel, vans, van fuel and employer-provided medical and dental cover. HMRC confirmed this narrower first phase in June 2026, having originally intended to mandate all benefits at once (gov.uk, 2026). Most other benefits – gym memberships, non-cash vouchers, mobile phones outside the usual exemption, and more – move into the mandatory regime a year later, from 6 April 2028.
Two benefits sit outside both phases for now: employment-related loans and living accommodation. Employers can still choose to payroll these voluntarily, but no mandatory date has been set.
For a manufacturing SME that provides company vans and private medical insurance to its sales team, this means real change from April 2027. A professional services firm whose main benefit is a gym membership scheme has an extra year before it must move to real-time reporting, though voluntary early adoption is worth discussing with your payroll and pensions provider now rather than later.
Do I need to register with HMRC before April 2027?
Only if you want to payroll benefits voluntarily ahead of the mandatory start date, or you want to bring loans and accommodation into payroll once those two benefits stay outside the mandatory rules. Employers who already payroll benefits voluntarily do not need to do anything further to prepare for phase 1 – the mechanics are largely the same, just compulsory. HMRC has said the voluntary registration service for benefits that remain outside mandatory payrolling reopens in November 2026, with registration needed before the tax year you want to start in.
For most SMEs providing company cars or medical cover, no registration is required. The phase 1 benefits become mandatory automatically from 6 April 2027, and P11Ds for those specific benefits stop after the 2026/27 tax year. But employers should still confirm, through their payroll software provider, that real-time reporting for phase 1 benefits is switched on correctly, rather than waiting for a P11D notice to prompt them.
What data will payroll teams need to get right?
Accurate, complete benefit data, held somewhere payroll can reach it every pay period, is the biggest readiness issue for most employers. Benefit information often sits with HR, a fleet manager or an insurance broker, and reaches payroll once a year when the P11D is prepared. Real-time reporting needs that same information monthly, not annually.
Practical steps worth starting now: confirm which system holds live records of company car and van allocations, check that private medical insurance renewal data reaches payroll promptly, and agree who owns mid-year changes such as a new company car or a departing employee who keeps a benefit for part of the year. HMRC has also said it will cut the number of data fields required on the Full Payment Submission for phase 1 benefits, to reduce the reporting burden compared with its original proposal (gov.uk, 2026). A retailer with a company car scheme spread across regional managers needs a single, current list of who has which vehicle and its CO2 figure – information that is easy to let go stale under annual reporting, but becomes visible in every payslip under payrolling.
We cover the wider groundwork, including software checks and data ownership, in our guide to payroll management best practices for SMEs.
Will P11Ds disappear completely?
Not yet, and not for everyone. The 2026/27 tax year is the last full year most employers will report benefits on a P11D, with the deadline for that return remaining 6 July 2027 and Class 1A National Insurance due by 22 July, or 19 July if paying by cheque (gov.uk, Employer Bulletin, June 2026). Once mandatory payrolling covers a benefit, that benefit comes off the P11D. Loans and accommodation stay on P11Ds indefinitely, since they remain outside the mandatory regime for now.
Late or incorrect P11D(b) returns still carry penalties under the current system, so employers moving benefits into payroll partway through the transition need to track which benefits are payrolled and which still need annual reporting. Getting that split wrong is a common and avoidable error. And employer Class 1A NIC itself is unaffected by the switch to payrolling: it stays at 15% for 2026/27, on the same no-upper-limit basis (gov.uk). What changes is that this liability arrives through the payroll each period, rather than as one bill the following July.
How does payroll benefits in kind reporting change staff communication?
Once a benefit moves into real-time payroll reporting, its taxable value is added to gross pay each period and taxed immediately, rather than being collected later through a PAYE code adjustment. Take-home pay falls in the months the benefit is reported, even though nothing about the benefit itself has changed.
For an employee with a company car currently taxed through their tax code, this can look like an unexplained pay cut if nobody has flagged it in advance. Employers who plan communications early – a short note at the point of payrolling, plus updated payslip wording – avoid a wave of queries in April 2027. This is also a natural point to review whether an existing benefits package still earns its cost against the new administrative burden, an area where our tax compliance team can help you weigh the numbers.
Next steps for employers
Mandatory payrolling of benefits in kind is a genuine change to how payroll operates, not a rebadged version of the P11D process. The phased approach softens the initial impact – company cars, vans and medical benefits from April 2027, most other benefits a year later – but it also means employers will run two reporting systems in parallel for at least one transition year. Getting the split wrong, or discovering in March 2027 that benefit data does not reach payroll in time, creates avoidable risk to compliance and to staff take-home pay.
And the practical risk here is not the tax rules themselves, which are broadly unchanged. It is the operational gap between where benefit data currently lives and where payroll needs it to be. Employers who start now have time to test their software, agree data ownership with HR and fleet teams, and brief staff before the first payslip changes. Employers who wait until early 2027 will be doing all of that against a deadline.
Frequently asked questions
What is payroll benefits in kind reporting?
Payroll benefits in kind reporting means taxing non-cash perks such as company cars, vans or private medical cover through the payroll in real time, rather than reporting them once a year on a P11D form. HMRC is making this mandatory in phases from 6 April 2027, starting with company cars, car fuel, vans, van fuel and medical benefits.
When does mandatory payrolling of benefits in kind start?
Mandatory payrolling starts on 6 April 2027 for company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most other benefits, such as gym memberships and non-cash vouchers, become mandatory a year later, from 6 April 2028. Loans and living accommodation remain outside the mandatory regime and can only be payrolled voluntarily.
Do small businesses have to payroll benefits in kind?
Yes. Mandatory payrolling applies to all UK employers who provide the affected benefits, regardless of size, once the relevant phase starts. There is no exemption for small or micro employers. If you provide company cars, vans or medical cover, you will need to report and tax these through payroll from 6 April 2027.
Will I still need to file a P11D after 2027?
Possibly, yes. P11Ds continue for any benefit that has not yet moved into mandatory payrolling – loans and accommodation indefinitely, and phase 2 benefits until April 2028. Once every benefit you provide is payrolled, P11D reporting for those specific benefits stops, though a P11D(b) may still apply during the transition.
If you provide company cars, vans or medical benefits and want a clear view of what payroll benefits in kind reporting means for your business, get in touch with our payroll team and we will map out what phase 1 means for your systems, your data and your staff communications, well before April 2027 arrives.