From 6 April 2027, company cars, vans and private medical cover must be reported through payroll every month – not through the P11d form. Here’s what it means for your business, and how to get ready.

If you’ve ever wrestled with a P11d in June (or, worse, July!), you may have wished the whole thing would just go away. Well, HMRC has heard you. Sort of. It isn’t going away, it’s just moving house.

To find out more about the P11d form, there’s a separate article here.

What’s changing?

It’s hard to believe that the P11d form was introduced under the reign of King George VI – and for nearly 80 years, employers have reported company benefits once, annualy, after the end of each tax year.

The tax on those benefits has then been collected later, usually through a change to the employee’s tax code, or directly through the employee’s tax return.

From 6 April 2027, that changes. The most popular benefits must be reported through your payroll, every time you pay your staff. This is called “payrolling of benefits in kind” or PBIK.

The tax on the benefits are now collected in exactly the same way as tax on your salary, rather than being caught up afterwards. Which, although it’s a bit more hassle, does make some sort of sense.

Which benefits are affected?

HMRC has decided to phase this in, which on paper is good news. BUT in reality, the categories below represent probably 95%+ of the benefits that our clients currently provide to their staff.

From 6 April 2027, the following must be payrolled:

• Company cars
• Car fuel
• Vans
• Van fuel
• Private medical cover and health insurance

Other benefits, such as gym memberships, are expected to follow from April 2028. Employment-related loans and living accommodation are staying outside the mandatory rules for now. Until the rules bite, you can carry on using a P11d for anything not yet covered.

However, you can opt-in to doing PBIK on those benefits, which is probably a good idea if you’re already payrolling cars and medical cover from April 2027. Have a chat with your accountant about the pros and cons of doing this voluntarily – it’ll be different for each employer.

Does this affect a small business?

Yes, and probably more than you’d think. When we say “employee”, that includes directors. If you run a limited company and drive a company car, or the company pays for your private medical cover, this applies to you even if you’re the only one on the payroll.

The benefit is that you won’t be facing a big tax bill after the year-end, as each month’s figures are dealt with as they happen.

The downside however is that, instead of an annual reporting, it’s now monthly. Which is fine if the amounts don’t change from month to month but if a company car changes, a van is swapped, or someone joins the medical plan halfway through the year, your payroll provider needs to know about it. Immediately.

Employment Taxes are NOT Changing

This is worth saying. It’s only a change to the way the benefits are reported, and the timescales under which they are paid, not the cost to the employer or the employee.

Employer’s National Insurance on these benefits (Class 1A, currently 15% of the benefit) is also reported in-year under the new system, so the cost is spread over the year.

A few things worth doing now

Make a list of every benefit your business provides. Check which ones fall into the April 2027 group. Then check that your payroll software, or whoever runs your payroll, is ready to handle them – not all software packages can handle this.

Also have a think about whether a company car is still worth it for you. We’ve had a few chats with clients where the answer turned out to be “not really”, and it’s much easier to make that decision before the change than after.

Especially considering the benefit in kind % rates are nudging up every year, even electric cars are becoming less tax-efficient(!)

The Crossover

One other thing to note is that in spring 2027 you’ll be payrolling – and paying the tax on – benefits provided to staff in real time. BUT you’ll also be dealing with the Employer’s NIC bill on your 26/27 P11d form, so there’s a bit of a double-whammy in the crossover period, and it’ll hurt the cash flow.

How we can help

We run payroll for plenty of small businesses, and we can do the same for you, if you decide it’s time to hand all this hassle over to someone else, so you can get on with the day job.

We’ll check your benefits, set everything up in good time, and make sure your payroll is doing what HMRC expects from the first day of the new rules.

If you’d like to talk it through, book a call with us and we’ll work out what you need to do. No jargon, no panic, and only a mild amount of penguin-related puns.