Payrolling Benefits in Kind in 2026: Voluntary Payrolling Now, Mandatory Payrolling from April 2027

For years, most UK employees with a company car or private medical cover have paid tax on it in arrears, through a tax code estimate and a P11D filed after the year end. That's ending. From April 2027, HMRC will require employers to put the most common benefits through payroll every pay period, and most others follow in April 2028. This guide is for employers, payroll bureaux and finance teams preparing in 2026. It explains who can payroll benefits now, exactly what becomes mandatory and when, how to calculate the amounts, what happens to Class 1A National Insurance and the P11D, and a preparation plan. For which benefits are taxable in the first place, see our expenses and benefits guide.

Quick answer

Payrolling means adding a benefit's taxable value to an employee's pay each period so tax is collected in real time. Voluntary payrolling closed to new registrations on 5 April 2026. Mandatory payrolling starts on 6 April 2027 for company cars, car fuel, vans, van fuel and medical benefits, and on 6 April 2028 for most other benefits. Loans and accommodation stay voluntary.

• No registration needed for mandatory benefits; registration for voluntary loans and accommodation opens November 2026

• Amount per period = annual cash equivalent ÷ number of pay periods

• Class 1A at 15% will be reported and paid through payroll for payrolled benefits

• Tax deducted can't exceed 50% of pay in a period

• 2026-27 benefits are still reported on P11Ds by 6 July 2027

What payrolling is and why it's changing

When a benefit is reported on a P11D, the employee's tax is collected indirectly. HMRC estimates the benefit's value and reduces the employee's tax code, then reconciles after the year end when the P11D arrives. If the estimate is wrong, because the employee changed car or the medical premium went up, the result is an underpayment collected in a later year or a refund. The employer files P11Ds and a P11D(b) by 6 July and pays Class 1A National Insurance by 22 July (19 July by cheque).

Payrolling cuts out the estimate. The employer adds the benefit's cash equivalent to taxable pay in each pay period, so the employee pays the right tax in the right year through PAYE. The benefit is removed from the tax code. The employee still doesn't pay National Insurance on it: only the employer's Class 1A is due.

The government announced in 2024 that payrolling would become mandatory for nearly all benefits. After consultation, and delays in publishing the technical detail, HMRC split the change in two. Its guidance, last updated on 23 September 2026, now sets out two phases.

Payrolling benefits: the key dates

5 April 2026

Voluntary payrolling registration for 2026-27 closed

November 2026

Registration opens to voluntarily payroll loans and accommodation; opt-out service for globally mobile employees

28 October 2026

Autumn Budget; final phase 1 guidance expected to align with it

5 April 2027

Deadline to register for voluntary payrolling of loans and accommodation for 2027-28

6 April 2027

Phase 1: cars, car fuel, vans, van fuel and medical benefits must be payrolled

6 July 2027

Last P11Ds and P11D(b) for 2026-27 benefits

6 April 2028

Phase 2: most other benefits must be payrolled

Payrolling in 2026-27: the closed voluntary scheme

For the current tax year, payrolling is voluntary and closed to newcomers. HMRC's payrolling page says you can only use the online service if you registered before 6 April 2026; you can no longer register or cancel a registration. The April 2026 Employer Bulletin confirms that no new registrations can be accepted. If you're not registered, you report 2026-27 benefits on P11Ds by 6 July 2027.

Employers that did register can view the benefits and employees they payroll and exclude employees, but once someone is excluded they can't be added back, and their benefits go on a P11D. Under the current voluntary scheme:

• you can't payroll living accommodation or beneficial loans; they go on a P11D even for employees whose other benefits are payrolled;
• you must give employees written notice by 1 June after the tax year, listing the payrolled benefits and their values, explaining that they won't be taxed twice, and noting any benefits not payrolled;
• you still calculate Class 1A National Insurance and file a P11D(b), but you don't file P11Ds for the payrolled benefits;
• you can't deduct more than 50% of pay in tax in a pay period; you can either remove the employee from payrolling (the benefit then goes into their tax code and on a P11D) or carry the uncollected tax forward within the year.

HMRC's draft guidance adds that Class 1A on benefits that are payrolled voluntarily during phase 1 will also have to be payrolled in real time from 6 April 2027.

Phase 1: what must be payrolled from April 2027

From 6 April 2027, employers must report and payroll income tax and Class 1A National Insurance in real time for:

• company cars;
• car fuel;
• vans;
• van fuel; and
• employer-provided medical benefits, such as private medical insurance.

There's no registration for these: the duty applies to every employer that provides them. HMRC will remove them from employees' tax codes from April 2027. Taxable expenses are also brought into real-time reporting under the draft rules. Employment-related loans and accommodation can be payrolled voluntarily from April 2027 if you register; HMRC's draft guidance says registration opens in November 2026 with a deadline of 5 April 2027 for the 2027-28 year.

Phase 2, from 6 April 2028, brings in most other benefits: gym memberships, non-exempt assets, taxable relocation costs and so on. Loans and accommodation stay voluntary. HMRC says the phase 2 technical specification will be published in the 2027 RTI specification cycle.

HMRC also plans a service from November 2026 that lets employers opt globally mobile employees out of payrolling voluntarily. Until then, those employees stay on the year-end P11D process.

How each benefit is reported, year by year

Benefit	2026-27	2027-28	2028-29 onwards
Company cars and car fuel	P11D (or payroll if registered)	Must payroll	Must payroll
Vans and van fuel	P11D (or payroll if registered)	Must payroll	Must payroll
Medical insurance and treatment	P11D (or payroll if registered)	Must payroll	Must payroll
Most other taxable benefits	P11D (or payroll if registered)	P11D	Must payroll
Beneficial loans	P11D only	P11D or voluntary payroll	P11D or voluntary payroll
Living accommodation	P11D only	P11D or voluntary payroll	P11D or voluntary payroll

Company cars and car fuel

2026-27

P11D (or payroll if registered)

2027-28

Must payroll

2028-29 onwards

Must payroll

Vans and van fuel

2026-27

P11D (or payroll if registered)

2027-28

Must payroll

2028-29 onwards

Must payroll

Medical insurance and treatment

2026-27

P11D (or payroll if registered)

2027-28

Must payroll

2028-29 onwards

Must payroll

Most other taxable benefits

2026-27

P11D (or payroll if registered)

2027-28

P11D

2028-29 onwards

Must payroll

Beneficial loans

2026-27

P11D only

2027-28

P11D or voluntary payroll

2028-29 onwards

P11D or voluntary payroll

Living accommodation

2026-27

P11D only

2027-28

P11D or voluntary payroll

2028-29 onwards

P11D or voluntary payroll

How to work out the amount each pay period

HMRC's draft guidance on reporting in real time sets the basic method. Take the cash equivalent of each benefit for the tax year, divide it by the number of pay periods, and round down to two decimal places. Add the result to the employee's taxable pay in each period. Where you don't yet know the exact value, you can estimate it, using last year's figure for a similar benefit, and correct it later.

Worked example: a company electric car. Dan, a monthly-paid sales manager, has a fully electric company car with a list price of £40,000. For 2027-28 the appropriate percentage for zero-emission cars is 5%, so the cash equivalent is £2,000. Payroll adds £166.66 to his taxable pay each month (£2,000 ÷ 12, rounded down). As a higher-rate taxpayer he pays about £66.66 a month more tax than he otherwise would, but his tax code no longer carries a car benefit deduction, so the net effect on his annual tax is neutral. His employer reports Class 1A on the £2,000 through payroll: £300 for the year at 15%.

Worked example: medical insurance. Priya has private medical cover that costs her employer £1,200 a year. Payroll adds £100 a month. As a basic-rate taxpayer she pays £20 a month more tax through payroll, instead of having the benefit coded out.

When the value changes during the year

Benefits change. An employee swaps car, the insurer raises the premium, someone joins or leaves. The rule is to recalculate the full-year cash equivalent, subtract what's already been payrolled, and spread the balance evenly over the remaining pay periods.

HMRC's example: an employee paid four-weekly (13 periods) has a benefit worth £2,600 a year, so £200 is payrolled each period. After 6 periods the value rises to £2,800. £1,200 has already gone through, so the remaining £1,600 is spread over the last 7 periods, about £228.57 each. If the information arrives too late for a pay run, you include it in the next Full Payment Submission.

Making good

Where an employee pays something back, such as a contribution towards private fuel, payroll the cash equivalent minus what they're reasonably expected to pay. If a £1,000 benefit is expected to be reduced by £400 of making good in March, you payroll £600 over the year. Employees have until 6 July after the tax year to make good, and employers until 22 July after the tax year to adjust benefit values by revising the final FPS. If the employee doesn't pay as expected, you correct the figures in later periods.

The 50% overriding limit

An employer can't deduct more than 50% of pay of an employee's pay in tax in a single period. This matters for low earners with valuable benefits, and for employees on statutory pay or unpaid leave who keep a car. Tax that can't be collected because of the limit is carried forward to later periods in the same year. Anything left at the end of the year is collected by HMRC through the P800 reconciliation, Simple Assessment or, for those already in it, Self Assessment.

Class 1A and the end of the P11D(b)

Under the P11D system, Class 1A is calculated once a year and paid by 22 July (19 July by cheque). Under mandatory payrolling, Class 1A on payrolled benefits is reported in its own RTI field and paid with your regular PAYE. Where an employee receives a benefit but has no earnings in the period, the employer still sends an FPS showing the benefit and pays the Class 1A.

That creates a one-off cash-flow squeeze. HMRC's preparation guidance points out that in July 2027 you'll pay Class 1A for 2026-27 benefits under the old P11D(b) process, while also paying real-time Class 1A for the first months of 2027-28. For an employer with ten company cars averaging £3,000 of benefit each, that's £4,500 of 2026-27 Class 1A in July 2027 on top of roughly £375 a month in-year from April 2027.

Phase 1 benefits won't need a P11D from 2027-28. You'll still file P11Ds and a P11D(b) for benefits outside phase 1 in 2027-28, until phase 2 removes most of them in April 2028.

Getting ready: a preparation plan

HMRC's draft guidance sets out what employers should be doing now. Translated for a small or medium employer:

Preparing for mandatory payrolling

1. 1

   List every benefit you provide

   Start with last year's P11Ds and add anything provided since. Flag which are phase 1 (cars, fuel, vans, medical) and which follow in 6 April 2028.

2. 2

   Collect the data payroll will need

   For cars: list price, CO2, electric range, fuel type, dates available and employee contributions. For medical: premium, start dates and who is covered.

   Tip: Set up a process so HR or fleet tells payroll about car changes before the next pay run.

3. 3

   Check your payroll software

   Ask your provider when real-time benefit reporting and the new RTI fields will be ready. HMRC's Basic PAYE Tools will also be updated.

4. 4

   Decide on loans and accommodation

   If you want a single process, register to payroll them voluntarily by 5 April 2027.

5. 5

   Budget for July 2027

   Plan for 2026-27 Class 1A under the P11D(b) and real-time Class 1A in the same month.

6. 6

   Tell employees

   Explain that tax on benefits moves into monthly pay, that their tax code will change, and that underpayments from earlier years may still be collected.

The employee message matters more than it looks. Someone who had a car benefit coded out last year and underpaid will see the prior-year underpayment collected through their code while the current year's benefit goes through payroll. To them it can look like paying tax twice. HMRC says it will keep collecting prior-year underpayments through tax codes, and employees can also pay through their personal tax account. Point anyone in difficulty to HMRC.

Salary sacrifice, tax codes and employees with more than one job

Benefits provided through salary sacrifice or a flexible benefits choice are payrolled at the amount the optional remuneration rules produce: usually the higher of the salary given up and the normal cash equivalent. HMRC's current payrolling guidance tells employers to work out Class 1A on the cash equivalent or the relevant optional remuneration amount, and the same logic carries into the mandatory regime. If you run an electric car salary sacrifice scheme, check that your software handles both the reduced salary and the payrolled car benefit in the same period. Our salary sacrifice guide explains which benefits still save tax.

Tax codes change too. Once a benefit is payrolled, HMRC removes it from the employee's code, so a code that was reduced below 1257L to collect tax on a company car will move back towards the standard code. Employers should apply the codes HMRC sends rather than adjusting anything themselves. For employees with a second job, the benefit is taxed through the payroll of the employer that provides it, which may push more tax onto that employment. Our tax codes guide explains how codes are issued and corrected.

Mandatory payrolling in numbers

5

Benefit types in phase 1

cars, car fuel, vans, van fuel, medical

6 April 2027

Phase 1 start

50% of pay

Maximum tax per pay period

15%

Class 1A rate

reported through payroll

Penalties, errors and the first year

HMRC's preparation guidance says that for 2027-28 it won't charge inaccuracy penalties for RTI errors linked to mandatory payrolling unless there's deliberate non-compliance. Late filing and late payment penalties, and late payment interest, still apply. That gives employers a soft first year, but not a free pass: if FPS submissions are late or PAYE isn't paid, the normal penalty rules bite.

The detail isn't final. HMRC says its final phase 1 guidance will be published to align with the Autumn Budget on 28 October 2026, and the draft legislation it has published is illustrative. Check the GOV.UK guidance after the Budget for any changes to the scope or the data fields.

Common mistakes to avoid

• Assuming you can still register for 2026-27. You can't. If you weren't registered before 6 April 2026, use P11Ds for this year.
• Leaving car data with the fleet team. Payroll needs list prices, CO2 and dates before each pay run from April 2027, not once a year.
• Forgetting the overriding limit for employees on low pay or long-term leave who keep a car.
• Not budgeting for July 2027, when two years of Class 1A fall due close together.
• Dropping P11Ds too early. In 2027-28 you still need them for benefits outside phase 1.
• Not telling staff. A sudden change in net pay without explanation generates queries and complaints.

For the existing P11D process, deadlines and penalties, see our P11D guide. For how company car values are worked out, see the company car tax guide.

Official links

• Mandatory payrolling: phased introductionPhase 1 April 2027, phase 2 April 2028
• Getting ready for mandatory payrollingPreparation steps and dates
• How to report a benefit in kind in real timeCalculations and examples
• Paying expenses and benefits through payroll (current service)Registered employers only
• Payrolling tax on benefits: technical guidanceVoluntary scheme rules

What to do next

Make a list of every benefit you provide, mark the phase 1 items, and ask your payroll software provider for its timetable now. Book a reminder to read HMRC's final guidance after the 28 October 2026 Budget, and decide by 5 April 2027 whether to payroll loans and accommodation voluntarily. Meanwhile, file 2026-27 P11Ds as usual using our P11D guide, and use the salary slip generator to show staff how a payrolled benefit will appear on their payslip.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

When does mandatory payrolling of benefits in kind start?

Phase 1 starts on 6 April 2027 and covers company cars, car fuel, vans, van fuel and employer-provided medical benefits. Phase 2 starts on 6 April 2028 and brings in most other benefits. Employment-related loans and living accommodation stay voluntary. HMRC's guidance was last updated in September 2026 and says final phase 1 guidance will align with the Autumn Budget 2026.

Can I still register to payroll benefits for 2026-27?

No. Registration for the existing voluntary payrolling service closed on 5 April 2026, and HMRC says it can't accept new registrations. Only employers registered before 6 April 2026 can payroll benefits in 2026-27. Everyone else reports 2026-27 benefits on P11Ds by 6 July 2027 and pays Class 1A by 22 July 2027.

Do I need to register for mandatory payrolling?

No registration is needed for the mandatory benefits from April 2027: company cars, car fuel, vans, van fuel and medical benefits. Registration is only needed if you want to voluntarily payroll loans or accommodation. HMRC's draft guidance says that registration opens in November 2026, with a deadline of 5 April 2027 for the 2027-28 tax year.

How do you calculate the amount to payroll?

Take the benefit's annual cash equivalent, divide it by the number of pay periods in the tax year and round down to two decimal places. Add that amount to the employee's taxable pay each period. A £2,100 benefit for a monthly-paid employee adds £175 a month. If the value changes, recalculate the year's total, subtract what's been payrolled and spread the balance over the remaining periods.

What happens to P11D forms?

For 2026-27, P11Ds and the P11D(b) are still required for benefits that aren't payrolled. From 2027-28, benefits that must be payrolled are reported through payroll instead, including Class 1A National Insurance. P11Ds are still needed in 2027-28 for benefits not yet mandated, until phase 2 brings most of them into payroll from April 2028.

Is there a limit on how much tax payroll can deduct for a benefit?

Yes. The overriding limit means you can't deduct more than 50% of an employee's pay in tax in a pay period. Any tax you can't collect is carried forward to later periods in the same year. Anything still uncollected at the end of the year is collected by HMRC after the year end, through the P800 process, Simple Assessment or Self Assessment.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 13 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.The phased introduction of mandatory payrolling for benefits in kind — HMRC · accessed 13 October 2026
2. 2.Getting ready for mandatory payrolling of benefits in kind — HMRC · accessed 13 October 2026
3. 3.How to report a benefit in kind in real time — HMRC · accessed 13 October 2026
4. 4.What happens when the full amount of tax cannot be collected — HMRC · accessed 13 October 2026
5. 5.Draft guidance and legislation to aid preparation for reporting benefits in kind in real time — HMRC · accessed 13 October 2026
6. 6.Paying your employees' expenses and benefits through your payroll — HMRC · accessed 13 October 2026
7. 7.Payrolling tax on employees' benefits and expenses through your payroll — HMRC · accessed 13 October 2026
8. 8.April 2026 issue of the Employer Bulletin — HMRC · accessed 13 October 2026