Get ready for 2027–28: payrolling benefits in kind, made easy

The 2027–28 tax year brings the biggest change to how benefits in kind are taxed in years. From 6 April 2027, company cars, car fuel, vans, van fuel and employer-provided medical cover must be reported and taxed through payroll every payday, instead of on a P11D after the year ends. HMRC calls it the mandatory payrolling of benefits in kind.

If you give any employee (or yourself, as a director) a company car or private medical insurance, this affects you. Here's what's changing, what it means for you and your team, and a checklist to work through before April.

What's changing

Today most employers report benefits once a year. After the tax year ends you file a P11D for each employee, HMRC adjusts their tax code to collect the tax, and you pay Class 1A National Insurance on the total in July with your P11D(b).

From April 2027 that moves into the pay run. Each payday, the taxable value of the benefit is added to the employee's pay, income tax is deducted through PAYE as normal, and the benefit is reported to HMRC on your Full Payment Submission (FPS) along with year-to-date totals. Class 1A National Insurance on those benefits is reported through payroll too.

Which benefits, and when

HMRC is bringing this in over two years:

You don't need to register to payroll the mandatory benefits. If you also want to payroll loans or accommodation from April 2027, you'll need to register with HMRC. That service opens in November 2026 and the deadline is 5 April 2027.

What it means for you as the employer

• No P11D for payrolled benefits. The reporting happens through the FPS during the year, so there's no year-end form to chase for these benefits.
• Class 1A moves into real time. National Insurance on payrolled benefits is reported through payroll as you go, rather than worked out once a year.
• Changes need handling in-year. A car swapped in October, an employee leaving in January, or a benefit that changes value all need to be reflected in the pay run they happen in.
• More detail on every FPS. Cars are reported with details such as list price, CO2 emissions and fuel type, plus period and year-to-date totals for each type of benefit.

A cash-flow heads-up for 2027

The 2026–27 tax year still works the old way. That means in July 2027 you'll pay Class 1A for your 2026–27 benefits through the P11D(b) as usual, while also paying Class 1A in real time on benefits from April 2027 onwards. For one year you're paying both, so it's worth planning for.

What it means for your employees

• Tax codes will change. HMRC will automatically take benefits out of employees' tax codes before April 2027, so the same benefit isn't taxed twice.
• The tax shows up on their payslip. Instead of a lower tax-free allowance, employees will see the benefit and the tax on it each payday. For most people the overall tax is similar, but take-home pay can look different.
• Some will pay catch-up tax at the same time. Employees who currently pay tax on benefits in arrears may still have an earlier underpayment collected through their tax code while paying the current year's tax through payroll. HMRC suggests explaining this early, and anyone facing hardship should contact HMRC.

HMRC's own advice is that early communication is key, so tell your team before their first April 2027 payslip lands.

Your checklist for getting ready

1. List every benefit you provide that you'd normally put on a P11D, and note which fall into the April 2027 group.
2. Gather your company car details: make and model, date first registered, list price and any optional accessories, CO2 emissions, fuel type, electric range for hybrids, the dates the car is available, and anything the employee pays towards it.
3. Gather van and medical details: the dates each van is available and whether fuel is provided, and the annual cost of any medical cover.
4. Decide on loans and accommodation. Payroll them voluntarily (register by 5 April 2027) or keep reporting them on a P11D.
5. Tell your employees what's changing and why their payslip and tax code will look different.
6. Plan your cash flow for July 2027, when the last P11D(b) Class 1A bill overlaps with real-time Class 1A.
7. Check your payroll software can report benefits in real time. HMRC lists this as one of the first things to do.

How PayAdjust makes it easy

PayAdjust is ready for payrolled benefits in the 2027–28 tax year, so you can tick the last item off your list and stop worrying about the rest.

• Record each benefit once. Add a company car, van or medical cover to the employee's record. The form asks for exactly what HMRC needs and nothing more. Engine size, for example, only comes up for cars registered before 1998.
• Every payday is handled for you. PayAdjust spreads the taxable value across the year, deducts the tax through PAYE, works out the Class 1A and reports it all on your FPS with the right year-to-date totals.
• Mid-year changes are just a date. When a car is swapped or an employee leaves, update the dates and the next pay run reflects it.
• Employees see it before payday. PayAdjust shows employees their payslip before payday, so the change in take-home pay isn't a surprise, and you aren't fielding questions on the day.
• Filed straight to HMRC. PayAdjust is HMRC-recognised payroll software and files your FPS directly from the pay run, with HMRC's receipt kept on file.

If you're moving payroll before April, the start of a new tax year is the cleanest time to switch. Try PayAdjust free for 30 days and have your benefits set up well before your first 2027–28 pay run. Full details on the pricing page.

Where this comes from

This guide is based on HMRC's draft guidance, preparing for reporting benefits in kind in real time, last updated 23 September 2026. HMRC is still finalising some details, including the exact scope of the April 2028 phase, and we'll update this post as it publishes more.