If your company provides benefits — company cars, private health insurance, or any other non-cash perk — you'll currently be reporting them through a P11D after the tax year ends. From April 2027, that process changes. HMRC is making payrolling of most benefits in kind mandatory, moving the reporting and taxation of those benefits into your payroll in real time. Here's what's happening, what it means in practice, and what directors should be doing now.
What Is Changing and When
HMRC confirmed in June 2026 that mandatory payrolling of benefits in kind will be introduced in two phases rather than all at once.
Phase 1 — from 6 April 2027: Mandatory payrolling applies to company cars, car fuel, vans, van fuel, and employer-provided medical benefits including private health insurance. From this date, these benefits must be reported and taxed through your payroll via Real Time Information submissions — not on an annual P11D.
Phase 2 — from 6 April 2028: Most remaining benefits in kind move into mandatory payrolling. This covers things like gym memberships, non-cash vouchers, and mobile phones where they fall outside existing exemptions.
Two exceptions remain outside mandatory payrolling for now: employment-related loans and employer-provided living accommodation. P11D and P11D(b) processes remain available for these two categories.
The P11D isn't disappearing completely overnight — but for the vast majority of benefits, the annual filing process ends in April 2027.
How Payrolling Benefits Actually Works
Under the current system, benefits are reported on a P11D after the tax year ends. HMRC then adjusts the employee's or director's tax code the following year to collect the tax. It's retrospective — you're always a year behind.
Under payrolling, the taxable value of each benefit is added to the director's gross pay each pay period. PAYE tax is collected in real time, just as it is on salary. The Class 1A National Insurance on benefits also moves into the Full Payment Submission process.
For directors, this means the tax on benefits like a company car or private health insurance will be deducted from their pay each month — rather than adjusting their tax code a year later.
What Directors and Employers Need to Do Now
This change affects every limited company that provides taxable benefits to directors or employees. The practical steps are worth working through now, not in March 2027.
- Audit every benefit your company currently provides. List all benefits in kind, their taxable values, and who receives them. This is your baseline for configuring payroll correctly.
- Check your payroll software. Your software needs to support real-time reporting of benefits from April 2027. Most modern cloud payroll software — including Xero Payroll — is being updated ahead of the deadline. Confirm your system will be ready.
- Understand the phasing. Company cars, car fuel, vans, and private health insurance are in scope from April 2027. Other benefits follow in April 2028. Know which of your benefits fall in which phase.
- Review any existing P11D processes. If your payroll and year-end processes are currently separate, they will need to be integrated. This is particularly relevant for directors whose benefits have been managed outside the main payroll cycle.
- Note the two exceptions. If your company provides director loans or employer-provided accommodation, these remain outside mandatory payrolling for now. P11D reporting continues for these categories.
Why Acting Early Matters
HMRC has confirmed there will be no penalties for accidental mistakes in the first year of mandatory payrolling — 2027/28 — provided there is no deliberate non-compliance. That's a soft landing, but it shouldn't be read as permission to arrive at April 2027 unprepared.
Getting payroll configuration wrong on benefits has a direct impact on director take-home pay and on HMRC reporting. An incorrectly configured system doesn't just create an admin problem — it creates a tax discrepancy that needs unwinding.
The companies best placed for April 2027 are those that have reviewed their benefits, configured their systems, and run through the new process before it becomes mandatory.
For the full HMRC guidance on payrolling benefits, see HMRC's payrolling benefits in kind guidance.
The shift to mandatory payrolling is one of the most significant changes to UK payroll compliance in decades. It's manageable — but it requires preparation. If you want to make sure your payroll setup is ready for April 2027, speak to a Runway co-founder.
