If your business provides company cars, car fuel, vans, private medical insurance, gym memberships or other taxable benefits, the way you report and tax those benefits is changing.
From 6 April 2027, employers will begin moving from annual P11D reporting to real-time reporting of benefits in kind through payroll and Real Time Information (RTI). Most remaining benefits are expected to follow from 6 April 2028.
For employers, this is not simply an HMRC reporting change. It could affect:
The transition is phased, but preparation needs to start well before April 2027. This guide explains payrolling benefits in kind in the UK, the difference between P11D vs payrolling, and the practical steps your business can take now.
Benefits in kind , often abbreviated to BiK , are non-cash benefits or advantages provided to an employee or director because of their employment.
Common examples include:
A benefit in kind is not the same as salary. Your employee does not receive the taxable value as additional cash. Instead, HMRC treats the benefit as having a cash-equivalent value for tax purposes.
Some benefits are exempt when specific conditions are met. For example, certain workplace facilities, pension contributions and qualifying cycle-to-work arrangements may receive different treatment. The detail matters , you should not assume that every benefit with a similar name has the same tax result.
Payrolling benefits in kind means adding the taxable value of a benefit to an employee’s taxable pay during the tax year.
The employee does not receive the benefit value in cash. Instead:
For example, if an employee receives private medical insurance with an annual taxable value of £600 and is paid monthly, payroll may spread that value across the employee’s pay periods. HMRC’s existing guidance explains the principle as £600 divided across 12 monthly paydays, producing a taxable amount of £50 per month.
The benefit itself is not paid to the employee as £50 cash. The amount is used to calculate the correct PAYE deduction.
This approach can make tax deductions more predictable for employees because tax is collected throughout the year rather than being adjusted later through a tax code or after the P11D process.
Voluntary payrolling has been available in the UK since April 2016. However, the Government is now introducing mandatory payrolling for certain benefits and expenses in phases.
| Area | P11D reporting | Payrolling benefits in kind |
|---|---|---|
| When tax is collected | Usually through a later tax-code adjustment after the benefit is reported | PAYE tax is collected during the tax year |
| Reporting route | P11D for individual benefits and P11D(b) for Class 1A NIC during the transition | Benefit data is included through payroll and RTI processes |
| Employee experience | Tax may be adjusted after the year end, which can create a delay | Tax is generally reflected in regular payslips throughout the year |
| Employer workflow | Annual information-gathering and form submissions | More frequent data collection, valuation and payroll controls |
| Class 1A National Insurance | Employer liability is calculated and reported through the relevant process | Employer liability remains; the reporting process is moving towards real-time reporting for benefits within mandatory scope |
| Key deadline during transition | P11D and P11D(b) are generally due by 6 July after the tax year | Payroll submissions are made during the year, with transitional year-end obligations still applying to some benefits |
The term “P11D is being abolished” is therefore incomplete. P11D reporting is being phased out for benefits within the mandatory payrolling regime, but loans and accommodation have separate treatment and some year-end obligations remain during the transition.
Employers should follow final HMRC guidance and technical specifications as they are published.
Based on HMRC information available at the date of publication, the change is being introduced in two phases.
Mandatory payrolling through RTI is expected to apply to:
Employers will not need to register to payroll these mandatory benefits. They will need to ensure their payroll software, procedures and data are ready to calculate and report them.
Mandatory payrolling is expected to extend to most remaining benefits in kind.
However, employer-provided loans and living accommodation are excluded from the current mandatory timetable. HMRC has indicated that these benefits will remain voluntary for the time being, with a future timetable to be confirmed.
Employers that want to voluntarily payroll non-mandatory benefits will need to follow HMRC’s registration requirements. HMRC guidance indicates that the voluntary registration service for the 2027/28 tax year is expected to be available from November 2026, with registration required by 5 April 2027.
You should check the latest HMRC position before acting because technical requirements and legislation may continue to develop.
The most important step is to treat this as a payroll process project rather than an isolated tax task.
List every benefit provided to employees and directors. Include benefits paid directly by your business, arranged through third parties, provided by connected companies or delivered through salary sacrifice.
For each benefit, record:
Check whether your payroll system supports benefits in kind payroll, RTI reporting and the relevant data fields for the 2027/28 changes.
A basic payroll package that handles salary alone may not be sufficient. Ask your provider:
Payroll cannot report a benefit accurately if HR, finance, fleet managers or external providers do not provide complete information.
Set clear responsibilities for:
Employees need to understand why their taxable pay may increase on their payslip even though their cash salary has not changed.
Explain:
Clear communication can prevent avoidable disputes and protect employee trust.
Do not wait for the P11D deadline to identify errors. Compare payroll records with HR, finance and supplier information every month or quarter.
A regular review can identify:
The taxable value of a company car can depend on factors such as the vehicle’s list price, availability for private use, CO₂ emissions and fuel type.
Car fuel is a separate benefit. It should not be assumed that providing a company car automatically covers the tax treatment of private fuel.
From April 2027, company cars and car fuel are expected to fall within the first phase of mandatory payrolling. Employers should keep vehicle records current and use HMRC’s company car and car fuel calculator where appropriate.
A van may receive different treatment from a company car, but private use remains important. Limited private use may qualify for different treatment from unrestricted private use.
Van fuel can also create a separate taxable benefit. Employers should review how vehicles are used in practice rather than relying only on their description in internal records.
HMRC provides guidance on calculating the value of company van benefits.
Employer-paid private medical insurance is a common benefit in kind. The taxable value will generally depend on the cost of the cover provided to the employee and, where relevant, their family.
Employer-provided medical benefits are included in the first phase of mandatory payrolling from April 2027. Review provider schedules regularly, particularly where employees add or remove family members.
Gym memberships, subscriptions, professional memberships and similar benefits need individual review. Some employer-provided facilities or work-related benefits may be exempt, while a personal membership paid for by the employer may be taxable.
The correct treatment depends on the facts and available exemptions. Use HMRC’s expenses and benefits A to Z rather than applying a general rule to every benefit.
Beneficial loans and employer-provided living accommodation are not currently included in the same mandatory timetable as cars, vans and medical benefits.
If you do not voluntarily payroll these benefits, they may continue to require P11D and P11D(b) reporting during the transition. HMRC’s final guidance should be checked before you decide whether to payroll them voluntarily.
Payrolling affects the employee’s Income Tax position, but it does not turn a benefit into salary.
The taxable value is calculated using the relevant benefit rules. For some benefits, this may be based on the employer’s cost. For company cars, the calculation is more specific. Salary sacrifice arrangements can also be subject to optional remuneration arrangement rules.
Employers remain responsible for Class 1A National Insurance contributions on benefits in kind where applicable. During the transition, you will still need reliable records to support your P11D(b) and Class 1A NIC obligations for benefits that remain within the year-end process.
Tax codes may also change. Under P11D reporting, HMRC may use the reported benefit to calculate a future tax-code adjustment. Under payrolling, tax is collected through current payroll, and HMRC’s processes are designed to avoid taxing the same benefit twice.
The practical priority is reconciliation. If the benefit value is wrong, the employee’s tax deduction and your employment-cost reporting may also be wrong.
Employers often encounter problems because they:
Before April 2027, we encourage you to confirm that you can:
Benefits in kind are non-cash benefits provided to an employee or director because of their employment, such as a company car, private medical insurance or a beneficial loan. Tax treatment depends on the type of benefit and whether an exemption applies.
Payrolling benefits in kind means adding the taxable value of a benefit to an employee’s taxable pay during the year so that PAYE tax is collected through regular payroll.
It is becoming mandatory in phases. Company cars, car fuel, vans, van fuel and employer-provided medical benefits are expected to enter mandatory payrolling from 6 April 2027. Most remaining benefits are expected to follow from 6 April 2028, excluding loans and accommodation under the current timetable.
P11D reporting is being phased out for benefits within the mandatory payrolling regime. It is not correct to assume that all P11D reporting ends immediately, particularly for loans, accommodation and benefits remaining outside mandatory payrolling during the transition.
The first phase starts on 6 April 2027. The second phase is expected to start on 6 April 2028.
The initial scope includes company cars, car fuel, vans, van fuel and employer-provided medical benefits.
Loans and employer-provided living accommodation are excluded from the current mandatory timetable. They may be payrolled voluntarily, subject to HMRC registration requirements, or reported through the relevant year-end process.
The taxable value of the benefit is reflected in regular PAYE deductions. Employees do not receive the taxable value as cash, but their take-home pay may change because tax is collected during the year.
Generally, yes. Employers remain responsible for Class 1A NIC on applicable taxable benefits. The reporting method is changing, so employers should follow the latest HMRC guidance and maintain supporting records.
The usual P11D and P11D(b) deadline is 6 July after the end of the tax year. Class 1A NIC payment is generally due by 19 July if paying by post or 22 July when paying electronically, although you should check the current HMRC deadlines for the relevant year.
The transition to benefits in kind payroll requires coordination between payroll, HR, finance and benefit providers. It is particularly important for growing businesses where responsibilities are spread across a small team.
At Price & Accountants, we provide payroll and pension services for businesses that want accurate payroll, organised records and dependable compliance processes. We can help you review your benefits inventory, assess payroll readiness, establish reporting procedures and prepare for the phased HMRC changes.
Our wider accounting services can also support employment-cost reporting and financial visibility as your business grows.
If you provide taxable benefits and want to understand how the 2027/28 changes affect your payroll process, contact Price & Accountants to arrange a practical review of your current arrangements.
This article reflects HMRC guidance and information available on 3 September 2026. The mandatory payrolling regime, legislation and technical specifications may develop before implementation. Employers should check the final HMRC rules and obtain appropriate advice before changing their payroll processes.
