Mandatory Payrolling of Benefits in Kind: What Employers Actually Need to do Before April 2027

From 6 April 2027, company cars, car fuel, vans, van fuel and employer-provided medical benefits have to be taxed through payroll in real time. For those benefits, the P11D stops existing. Everything else follows a year later.

That is the change, and it isn't hard to understand. The hard part is the work it creates. Finding out where every benefit's data lives, who owns it, and whether it can reach payroll before cut-off every single month sits across reward, payroll, HR and finance, and right now it is nobody's job in particular.

Most employers haven't started. Put the question to a room of reward and payroll leaders, as we did in a recent webinar with over 200 people, and roughly 43% say they are just starting and a quarter haven't started at all. Another quarter reckon they are well underway.

Ben May wasn't surprised by that, which tells you something. April 2027 is seven months away, the final technical detail only reached software vendors in September, and most teams spent the summer doing P11Ds rather than planning for what replaces them.

What follows is a conversation with him: what's actually changing, what to do about it, and the questions we didn't get to answer.

What is mandatory payrolling of benefits in kind?

Carl: In plain English, what is mandatory payrolling of benefits in kind, and what is changing for an employer?

Ben May: HMRC announced a phased approach in the middle of June. Phase one is from 6 April 2027: company cars, car fuel, vans, van fuel and employer-provided medical benefits. Those have to be reported through your payroll, which means employees are taxed in real time on them through the course of the tax year. No P11D needed for those benefits any more.

You'd still complete your P11D for 2026/27 by July 2027. But at the same time you're doing your mandatory payrolling from April. Phase two is everything else, from 6 April 2028. Loans and accommodation will be exempt from being mandated as these are significantly more complex to calculate and payroll in real than other benefits. As a result, they have deferred from being mandated whilst HMRC work through the operational challenges.

Carl: And if we're already payrolling voluntarily today, we're done?

Ben May: There's more data reporting coming. Under voluntary payrolling today we only send HMRC two fields: the total amount payrolled in the period, and the year-to-date value. From April 2027 HMRC want the granular detail. They want to split out the benefits you're reporting.

Cars we send today, so that stays broadly as it is, with about four new data fields. Vans get separated out, so you report the period value and the year to date. For employer-provided medical, HMRC want additional information on the FPS: the policy value for the policy year, and the taxable amount for the year.

In a nutshell, HMRC want more information. They want more metadata, so they can do their compliance checks.

How to prepare for payrolling benefits in kind before April 2027

Carl: What does this look like on the morning it goes live? I don't imagine there's a hand hovering over a button.

Ben May: I hope not. The prep work beforehand is going to be really important. Understanding where all your benefits sit. Who gives you the data, who's got it. It's not always the payroll person that's got the data. It could be the benefits team, finance or HR team.

So the first thing is understanding your benefit providers. Who's sending you data, especially for private medical. Where does it come from, what format is it in, what's on it. That's the bit I want done before I go and press my button for the April pay run.

Then, understand your payroll provider's cut-offs. When do they need the information by? Because what you don't want to do is submit data late. If it arrives late into payroll, the employee has a higher tax charge across the remaining eleven months. You want to spread that charge evenly across the tax year.

Carl: And cars?

Ben May: Cars are going to be a struggle for some. One company delivers the car, and until they've delivered it, that company has to report back to another company to say we've delivered the car, this is the date. That then has to work its way all the way through to payroll, in a timely fashion, so the individual can be taxed in real time on the correct value.

You can make an estimate to begin with and correct it as you go through the year. HMRC are happy with that.

Carl: I'm feeling slightly anxious, Ben.

Ben May: Get prepared. Understand where the data's coming from, understand your policy rules. What happens with new starters, what happens with leavers. For private medical, does the charge finish mid-month when someone leaves, or do you take a full month? All that goes through payroll on someone's last payslip. And think about anyone under salary sacrifice, because OpRA rules kick in and you report the higher of the benefit value or the amount sacrificed.

Get your employee communications drafted and approved, and start issuing them after Christmas.

The 2027 transition year: will employees be taxed twice?

This was the part of the session that generated the most questions, and it's the part most likely to land in your inbox next spring.

Ben May: If you're submitting P11Ds today, the employee gets a tax code adjustment after the end of the tax year for tax that wasn't collected.

Say medical cost £1,200 in 2026/27. HMRC will remove that from the employee's tax code, because they assume you have that benefit. But what they don't know is whether it cost more last year, and they won't know until the P11D is submitted. Say it went up to £1,500. HMRC thought £1,200, the P11D says £1,500, so there's £300 of difference they need to collect tax on, and the tax code gets adjusted to recover that over 2027/28.

At the same time, from 2027/28, the employee has one twelfth of the £1,500 going through payroll each period. So in the first year they see a tax code change for an underpayment from the previous year, and they start paying in real time.

Employees might think they're being taxed twice. They're not. They're paying tax on something they received in a previous tax year, and then paying in real time.

Ben May: It's a bit of a myth, unless you're in your first year of receiving the benefit where HMRC haven't got a clue about it. But there is potential financial hardship there, particularly for people with company cars and sizeable adjustments. So communicate. Set it out, explain it, take the mystery out of it.

There's an employer cash-flow version of the same problem. You wouldn't have paid Class 1A until July. Now you're paying Class 1A from April on real-time benefits, and you're also paying Class 1A for the previous tax year when that lands in July.

Questions to ask your payroll provider

Carl: What questions should employers be putting to their payroll provider right now?

Ben May: Understand the timeline for the software change. At ADP we're looking at the start to middle of January for our changes. I know that probably frightens some employers. But we've only just received the technical specifications. We've got to do the development work, the testing, the business readiness cycle.

Each software provider has its own release cycle. So understand the release cycle, which drop it's coming into, and what information they need from you and when.

Then the detail. Where does car data need to be stored, and do you set up each car and assign it to an employee? Who's doing the car calculations, the payroll system or the benefit provider?

Carl: And where do people go for the latest?

Ben May: HMRC's interim guidance on mandatory payrolling is being kept up to date all the time. Bookmark it. There'll be more published by the end of the year and the detail will get richer. Talk to your benefit provider about what data you can get and in what format, talk to your payroll software about their plan, and tap into whatever peer groups and channels you have.

One date worth putting in the diary: the portal for registering voluntary payrolling of non-mandated benefits opens in November, and you need to register by 5 April 2027 if you want to payroll them from April. Miss it and you wait a year.

Payrolling benefits in kind: your questions answered

These came up and didn't get answered. Where an answer goes beyond what Ben May confirmed, we've said so.

Do health cash plans count as "employer-provided medical benefits"? Ben May confirmed on the call that the field isn't limited to private medical insurance, and picks up dental and critical illness cover. Health cash plans sit in the same part of the P11D today, so our working assumption is yes. We're confirming.

We have employees on car allowances with fuel cards. Is that fuel in scope? Almost certainly not as phase-one car fuel benefit. The car fuel benefit charge applies where there's a company car. Fuel provided for a privately owned vehicle is generally treated differently, and would fall into phase two at the earliest. Worth checking how yours is currently reported.

What about benefits taken by salary sacrifice, like dental or personal accident? Sacrifice doesn't take a benefit out of scope. It changes the value, via OpRA, to the higher of the benefit value or the amount given up.

If our payroll system isn't ready for April 2027, can we process in May backdated? You'd be catching up rather than complying, and the employee absorbs it. The same logic Ben May gave for late data applies: miss April and the year's charge compresses into fewer pay periods. HMRC have indicated a light touch on inaccuracy penalties in the first year, but late filing and late payment penalties are a different matter.

Will Class 1A be added to our monthly or quarterly payments to HMRC? Yes. HMRC confirmed in September that Class 1A on both mandatory and voluntarily payrolled benefits is calculated and paid in real time, which means it lands in your regular PAYE remittance rather than the July payment. Ben May noted the rounding rules are still awaited.

Do we still need a P11D(b)? For anything still reported on a P11D in 2027/28, yes. For payrolled benefits the Class 1A is already being paid through payroll.

Could April 2027 move again? It moved once, from 2026. Nobody can promise it won't. But the phasing is settled, the draft legislation is published and software providers are building. Planning on the basis that it holds is the only sensible position.

One from the chat worth repeating. Ben May said he thought HMRC don't adjust tax codes until after the July deadline, and added, honestly, "I could be wrong." An attendee came back with a P11D submitted on 11 May that produced a tax code change on 14 May. Which is a good argument for getting your 2026/27 P11Ds in early, and for not assuming the transition-year conversation with employees can wait until the summer.

Next steps: what to do before April 2027

Audit every benefit and find out where its data comes from and who owns it. Ask your payroll provider when their release ships and when you can test, rather than whether they're ready. Draft your employee communications now and send them in February or March. And diarise the voluntary registration portal in November if you want to bring phase-two benefits forward.

As Ben May put it: know your cut-off, and know where your data comes from. Not everything sits in a benefits portal.