Mandatory payrolling of most benefits in kind has not started in April 2026. The planned start date is now April 2027, which gives employers an extra year to prepare. This is important because many businesses still need to use the existing P11D and P11D(b) process for the 2026/27 tax year unless they registered to payroll benefits before 6 April 2026.

The change is still significant. From April 2027, employers are expected to report most taxable benefits through payroll in real time, rather than reporting them after the end of the tax year on a P11D form. If your business provides company cars, private medical insurance, fuel benefits, gym memberships or similar taxable benefits, now is the time to review your payroll software, employee records and internal reporting process.

This guide explains what mandatory payrolling means, which benefits are affected, how Class 1A National Insurance is changing, and what employers should do during the 2026/27 preparation year.

What Is Mandatory Payrolling of Benefits?

Voluntary payrolling of benefits in kind has been available since April 2016. Under this approach, the taxable value of a benefit is included in payroll during the tax year, so the employee pays tax through PAYE in real time.

Under the older P11D process, the employer reports benefits after the tax year ends. HMRC then uses that information to adjust the employee’s tax code or reconcile their tax position. This can create delays, confusion and unexpected tax code changes.

The move to mandatory payrolling is designed to make benefit taxation more current and reduce reliance on year-end reporting. It fits into the wider shift towards digital, ongoing tax reporting, covered in our posts on the rise of AI and automation in accounting and regtech making compliance smarter.

What Counts as a Benefit in Kind?

A benefit in kind is a non-cash benefit provided to an employee or director because of their employment. The taxable value is usually called the cash equivalent.

Benefit in kind	Taxable?	Notes
Company car	Yes	Based on list price, CO2 emissions, fuel type and availability
Company car fuel	Yes	Based on the relevant car fuel benefit rules
Private medical insurance	Yes	Usually based on the cost to the employer
Gym membership	Yes	Usually taxable unless a specific exemption applies
Non-business travel	Yes	Taxable where the employer meets private travel costs
Interest-free or low-interest loans	Usually	Taxable where the loan is above the relevant threshold and below HMRC’s official interest rate
Employer-provided living accommodation	Usually	Subject to specific valuation rules
One mobile phone per employee	Usually exempt	Exempt where the conditions are met
Employer pension contributions	No	Not treated as a benefit in kind in the same way
Legacy childcare vouchers	Depends	Treatment depends on when the scheme was entered and the employee’s circumstances

Our post on national insurance contributions explains how benefits interact with the wider employer NIC framework.

Which Benefits Will Be Payrolled?

From April 2027, most taxable benefits are expected to be reported through payroll. This includes common benefits such as company cars, fuel, private medical insurance and other cash-equivalent benefits.

However, employment-related loans and employer-provided living accommodation are being treated differently at the start of the new system. Employers are expected to be able to payroll these voluntarily from April 2027 if they register for that specific service, but they will not be included in the same way as most other benefits at the outset.

That means the P11D process will not disappear completely overnight. Some employers may still need to use P11D forms for excluded benefits or specific cases.

Category	Position
Company cars and fuel	Expected to be payrolled from April 2027
Private medical insurance	Expected to be payrolled from April 2027
Most taxable benefits	Expected to be payrolled from April 2027
Employer-provided living accommodation	Excluded initially unless voluntarily payrolled when available
Beneficial loans	Excluded initially unless voluntarily payrolled when available
2026/27 benefits where employer was not registered by 5 April 2026	Still reported on P11D/P11D(b)

The 2026/27 Transition Year

The 2026/27 tax year is a preparation year, not the first year of mandatory payrolling.

If you registered to payroll benefits before 6 April 2026, you can continue payrolling those registered benefits for 2026/27. If you did not register by 5 April 2026, you must continue using P11D forms for 2026/27 benefits.

For 2026/27, employers who are not payrolling benefits should still submit:

• P11D forms for employees and directors who receive taxable benefits
• A P11D(b) form to report Class 1A National Insurance
• Payment of Class 1A NIC by the normal deadline after the tax year end

Our post on amending a tax return is useful where past-year benefit reporting errors need to be corrected.

How Payrolling a Benefit Works in Practice

A simple example helps explain the process.

An employee has a company car with a cash equivalent benefit of £7,000 for the year.

Under the old P11D approach:

• The benefit is reported after the tax year ends.
• HMRC may adjust the employee’s tax code.
• The employee pays tax through a reduced tax code or later reconciliation.
• The employer files P11D and P11D(b) forms after year-end.

Under payrolling:

• The annual cash equivalent is divided across the relevant pay periods.
• If paid monthly, £7,000 divided by 12 gives £583.33 per month.
• That amount is added to taxable pay for PAYE purposes.
• The employee pays tax on the benefit through payroll during the year.
• No P11D is needed for that payrolled benefit.

Our post on the 1257L tax code explains how the standard personal allowance code works and why tax code changes can confuse employees during the transition.

What Happens to P11D Forms?

P11D forms are not fully gone in 2026/27. They remain necessary for employers that did not register to payroll benefits by 5 April 2026 and for benefits that are not payrolled.

From April 2027, P11D forms are expected to be much less common because most taxable benefits will be reported through payroll. However, they may still be needed for excluded benefits, correction cases and some specialist situations.

P11D(b) also remains important. For 2026/27, employers still need to use P11D(b) to report Class 1A NIC, even if they voluntarily payroll some benefits.

How Class 1A National Insurance Is Affected

Class 1A NIC is the employer’s National Insurance charge on most taxable benefits. The rate is 15% from April 2025.

For 2026/27, the existing process continues. Employers calculate Class 1A NIC after the end of the tax year, report it on P11D(b), and pay it by the normal deadline.

From April 2027, the planned system is different. Class 1A NIC on most payrolled benefits is expected to be reported and paid through Real Time Information alongside payroll. This means employers need to prepare for a different cash flow pattern.

There may also be a one-off overlap in 2027. Employers may still need to pay Class 1A NIC in July 2027 for 2026/27 benefits under the old system, while also starting to pay Class 1A NIC in real time for 2027/28 benefits.

Our post on cash flow forecasting for small businesses can help you plan for this kind of payroll-related timing issue.

The Tax Code Transition Risk

One of the biggest practical risks is employee confusion around tax codes.

When benefits move into payroll, HMRC should remove the benefit adjustment from the employee’s tax code. The employee should then pay tax through payroll instead.

Problems can arise if:

• The benefit is still included in the tax code
• The same benefit is also payrolled
• The employee is also paying tax underpayments from earlier years
• The employee misunderstands why their payslip has changed

This can look like double taxation, although not every reduced code will be wrong. Some tax codes may still include earlier underpayments that HMRC is collecting separately.

Employees should check their payslips and tax codes carefully when benefits are payrolled. Employers should explain the change clearly and respond quickly if staff believe they are being taxed twice.

This is the kind of issue that a professional payroll team can spot early. Our payroll services include reviewing employee tax codes and benefit treatment as part of the payroll process.

What Employees Need to Understand

Mandatory payrolling changes how employees see benefits on their payslips. It should not change the total tax due on the benefit if everything is set up correctly, but it may change the timing and visibility of deductions.

Employees may notice:

• The cash equivalent of the benefit appearing on payslips
• A change to their tax code
• A change in monthly net pay
• A year-end benefit summary instead of a P11D for payrolled benefits
• Continued P11D reporting for any excluded or non-payrolled benefits

Employers must provide employees with details of payrolled benefits after the end of the tax year, usually by 1 June following the tax year end. This helps employees complete any tax return they need to file.

Our post on self-assessment tax returns is relevant for employees and directors whose benefits need to be reflected in their wider personal tax position.

What Happens to Loans and Accommodation?

Employment-related loans and employer-provided living accommodation need special care.

For beneficial loans, the taxable benefit is usually based on the difference between interest paid and HMRC’s official rate, where the loan exceeds the relevant threshold. These may still require P11D reporting unless voluntarily payrolled under the new service from April 2027.

For employer-provided accommodation, the benefit calculation can be more complex and may depend on annual value, rent, property cost and other factors. These benefits are also excluded from the initial mandatory regime unless voluntarily payrolled when the option becomes available.

Our post on what is a director’s loan and how does it work is particularly relevant where directors receive loans that may create a taxable benefit.

Getting Payroll Software and Processes Ready

Mandatory payrolling requires payroll software and internal systems that can handle benefits accurately throughout the year.

Your payroll process should be able to:

• Record the cash equivalent of each benefit
• Split the annual value across pay periods
• Adjust values when benefits change
• Report the required data through payroll
• Deal with joiners and leavers
• Separate payrolled and non-payrolled benefits
• Produce employee year-end benefit summaries
• Track Class 1A NIC correctly

Most modern payroll systems are expected to support the new process, but employers should not assume everything will work automatically. Speak to your software provider or payroll adviser early.

Our post on MTD for Income Tax gives useful context on the broader move towards digital tax reporting, and our certified QuickBooks ProAdvisors team can help if you are reviewing cloud-based payroll and accounting systems.

Common Errors Employers Should Avoid

During the transition, common mistakes include:

• Assuming mandatory payrolling started in April 2026
• Failing to use P11D and P11D(b) for 2026/27 where required
• Trying to register for voluntary payrolling after the 5 April 2026 deadline
• Including exempt benefits in taxable payrolled figures
• Miscalculating company car benefits
• Forgetting that Class 1A NIC still needs P11D(b) reporting for 2026/27
• Not explaining payslip and tax code changes to employees
• Failing to prepare payroll software for April 2027

Our post on corporation tax mistakes gives wider context on the cost of compliance errors, while HMRC enquiries and how an accountant supports you explains how professional support can help if HMRC queries your records.

How This Sits Alongside Other Payroll Obligations

Payrolling benefits will sit alongside existing payroll duties, including RTI submissions, auto-enrolment pensions, National Living Wage checks, holiday pay and, for construction businesses, CIS.

Our post on CIS for contractors: a checklist is relevant for construction employers managing both CIS and payroll compliance. Our guide to understanding the calculation of holiday pay is also useful when reviewing wider payroll processes.

Our post on hybrid work models and the employment landscape may help if you are reassessing which benefits still suit your workforce.

How Asmat and Co Can Help

As experienced payroll accountants working with employers across Slough, Berkshire and beyond, Asmat and Co can help you prepare for mandatory payrolling before April 2027.

We can review your current benefits, check whether P11D reporting is still required for 2026/27, set up your payroll software correctly, calculate benefit values, review employee tax codes and make sure your Class 1A NIC position is properly planned.

For limited company directors receiving benefits such as company cars or private medical insurance, we can manage the payroll and personal tax interaction alongside your director payroll and self-assessment position.

We also produce financial reports that show payroll costs clearly, including the impact of benefits and Class 1A NIC. Our small business accountants team and accountants in Reading support employers across the region with payroll, benefits and tax compliance.

If you are managing payroll in-house and are not confident your system will be ready, our guide to switching to an online accountant explains how straightforward the move can be. Our post on what an accountant does for an SME also shows how payroll fits into broader business support.

Frequently Asked Questions

Did mandatory payrolling of benefits start in April 2026?

No. The planned mandatory start date is April 2027. For 2026/27, employers can only payroll benefits if they registered before 6 April 2026. Otherwise, they must continue using P11D and P11D(b).

If I was already voluntarily payrolling benefits, do I need to do anything?

You should review which benefits you are payrolling and whether any remaining P11D benefits will need to move into payroll from April 2027. You should also plan for Class 1A NIC cash flow changes.

What if I missed the voluntary registration deadline for 2026/27?

You should continue reporting benefits through P11D and P11D(b) for 2026/27. You should then prepare for mandatory payrolling from April 2027.

Do I still need to give employees a year-end benefit summary?

Yes. Where benefits are payrolled, employees still need details of the benefits provided and their value, especially if they complete a self-assessment tax return.

Does payrolling a benefit make it pensionable pay?

No. The taxable benefit amount added for PAYE purposes is not usually treated as pensionable earnings. Check your pension scheme rules and payroll setup to make sure it is handled correctly.

What happens if an employee joins or leaves mid-year?

The benefit should be payrolled only for the period it is available to the employee. Joiners, leavers and benefit changes need to be recorded promptly so the correct amount is taxed.

How is the taxable value of a company car calculated?

The taxable value is based on the car’s list price and the appropriate percentage for the vehicle, which depends mainly on CO2 emissions, fuel type and the tax year. Electric and lower-emission vehicles usually have lower percentages than high-emission vehicles.

Can payroll software handle mandatory payrolling automatically?

Many modern systems should be able to, but you should check early. The software must report the taxable benefit correctly without treating it as extra cash pay.

Make Sure Your Payroll Is Ready Before April 2027

Mandatory payrolling of benefits is now a 2027 change, but employers should use 2026/27 to prepare properly. If your business is not ready, employees may face confusing tax codes, benefits may be misreported and Class 1A NIC cash flow may catch you out.

Contact Asmat and Co today to review your payroll setup, check your benefits reporting and make sure your business is ready for the next stage of payroll compliance.