Mandatory payrolling of benefits – Upcoming changes for all employers

From April 2027, all taxable benefits in kind such as company cars, private medical insurance and other non-cash benefits will need to be processed through payroll.

Employers will no longer be able to submit year-end P11Ds for these benefits.

Instead, they must be reported and taxed in real time through payroll, with Class 1A National Insurance contributions calculated and paid during the year.

This is part of HM Revenue & Customs’ (HMRC’s) wider move to modernise and simplify the UK tax system. Although originally due to take effect in April 2026, the change will now apply from April 2027.

What this could mean for your business

For smaller businesses who currently run payroll themselves through Xero or similar software, this will mean a very different way of handling benefits.

At present, many employers engage us each year to prepare and submit P11Ds, with no impact on their regular payroll processes. This will no longer be possible from April 2027.

Preparing your payroll system

Employers will need to ensure that their payroll system is fully capable of processing taxable benefits accurately, and that the necessary reporting and processes are in place well ahead of the new requirement.

It is also important to be aware that this may change existing working arrangements.

Businesses that currently rely on us solely for P11Ds may need to formally engage our payroll team to manage these new requirements, with a different scope of service and engagement.

Should you start planning now?

We would encourage all employers to start considering how this change may affect them, particularly those who do not currently payroll benefits or use an outsourced payroll service.

Moving early will allow more time to plan and ensure a smooth transition.

Our team can provide full support, from registering for payrolling of benefits to managing all aspects of compliance, and helping to ensure that everything is in place ahead of April 2027.

If you would like to discuss your options, or start preparing now, please get speak with our payroll team today.

Neil Manuel