Payroll Changes from April 2027: New HMRC Rules for Employee Benefits Explained

Published: 27 October 2026
Category: Payroll | HMRC Updates | Employer Compliance

HM Revenue & Customs (HMRC) has announced important changes to the way employers report certain employee benefits through payroll, with new requirements taking effect from 6 April 2027.

The changes will affect businesses providing benefits such as company cars, private medical insurance and company vans.

Instead of reporting these benefits mainly through annual P11D forms, employers will need to report specified benefits through their payroll systems in real time.

At TOPTAX Accountants, we help businesses understand their payroll and tax reporting responsibilities. In this guide, we explain the changes, who will be affected and what employers should do before April 2027.

1. What Is Changing in April 2027?

Currently, many employers report taxable benefits provided to employees and directors using P11D forms after the end of the tax year.

From 6 April 2027, HMRC will introduce mandatory payrolling for certain benefits in kind.

This means employers will generally need to include the taxable value of specified benefits in their payroll calculations and report the information through Real Time Information (RTI).

The changes are being introduced in phases to give employers and payroll software providers additional time to prepare.

2. Which Employee Benefits Will Be Affected?

The first phase of mandatory payrolling, beginning in April 2027, will cover:

• Company cars: Taxable benefits arising when employees or directors have access to company cars for private use.

• Car fuel: Taxable fuel benefits where employers provide fuel for private journeys.

• Company vans: Taxable van benefits where relevant private use is permitted.

• Van fuel: Taxable benefits associated with employer-provided fuel for private van use.

• Private medical benefits: Taxable medical benefits provided by employers.

Other benefits will generally remain under existing reporting arrangements until the relevant changes are introduced.

From April 2028, mandatory payrolling is expected to extend to most remaining benefits in kind.

The timing for employer-provided loans and accommodation will be confirmed separately.

3. What Does Payrolling Benefits in Kind Mean?

Benefits in kind are non-cash benefits that an employer provides to an employee or director.

For example, a limited company might provide its director with a company car that is also available for private journeys.

The private-use benefit may create an Income Tax liability for the director and a Class 1A National Insurance liability for the company.

Under the traditional system, taxable benefits are generally reported after the end of the tax year, with tax often collected through adjustments to employees' PAYE tax codes.

Under mandatory payrolling, the taxable benefit will instead be included in payroll calculations during the year.

This allows the relevant Income Tax to be collected closer to the time the benefit is received.

4. Will Employers Still Need to Submit P11D Forms?

For benefits covered by mandatory payrolling from April 2027, employers will generally no longer use the traditional annual P11D reporting process.

Instead, the benefits will be reported through payroll.

However, P11D reporting will continue to apply to certain benefits outside the mandatory arrangements, including those not voluntarily payrolled.

Employers should therefore review which benefits they provide and determine how each will need to be reported.

5. Changes to Class 1A National Insurance

An important part of the April 2027 reforms concerns Class 1A National Insurance contributions.

Class 1A National Insurance is generally payable by employers on certain taxable benefits provided to employees and directors.

From April 2027, employers will need to report and pay the relevant Class 1A National Insurance contributions through payroll in real time for benefits covered by mandatory payrolling.

HMRC has also confirmed that where employers voluntarily payroll other benefits, the associated Class 1A contributions must generally be reported and paid through payroll in real time.

This means employers will need to review both their payroll reporting arrangements and the timing of their National Insurance payments.

6. How Will the Changes Affect Employees?

For employees receiving taxable benefits, the new system may change how Income Tax appears in their payslips.

Instead of paying tax through a later adjustment to their PAYE tax code, employees will generally pay the tax through payroll during the year in which the benefit is received.

This could affect their monthly take-home pay.

Some employees may also have tax underpayments from previous years being collected through their tax codes while paying current-year tax on benefits through payroll.

Employers should explain these changes clearly to avoid confusion.

7. What Should Small Businesses and Limited Company Directors Do?

Businesses providing taxable employee benefits should start preparing before April 2027.

Review existing employee benefits

Identify any company cars, vans, fuel benefits, private medical insurance or other taxable benefits provided to employees and directors.

Check payroll software compatibility

Speak to your payroll software provider or payroll agent to confirm that your system will support the new reporting requirements.

Review payroll procedures

Consider how benefit values will be calculated, recorded and updated throughout the tax year.

Prepare employee communications

Explain how the changes may affect employees' PAYE deductions and payslips.

Seek professional advice

Your accountant or payroll adviser can help assess your reporting obligations and prepare for the transition.

8. Will There Be Penalties for Mistakes?

HMRC has announced a temporary relaxation of certain inaccuracy penalties during the first year of mandatory payrolling.

For the 2027/28 tax year, penalties for inaccuracies relating to mandatory payrolling will generally not apply unless there is deliberate non-compliance.

However, this does not remove employers' obligations to submit accurate payroll information.

Late filing penalties, late payment penalties and interest may still apply where relevant.

Employers should therefore prepare carefully rather than rely on the transitional arrangements.

9. What About Businesses That Do Not Provide Employee Benefits?

If your business does not provide taxable benefits in kind, the new mandatory benefit-reporting requirements may have little or no immediate impact on your payroll.

However, employers should still review their arrangements to ensure they understand whether any payments or benefits are taxable.

Normal payroll responsibilities, including PAYE, National Insurance, RTI reporting and relevant workplace pension requirements, will continue.

10. How TOPTAX Accountants Can Help

At TOPTAX Accountants, we provide professional payroll, taxation and business compliance support for small businesses and limited companies.

Our services include:

• Payroll processing and payslip preparation.

• PAYE and National Insurance calculations.

• RTI submissions to HMRC.

• Guidance on employee benefits and payroll reporting.

• Support with Class 1A National Insurance obligations.

• Assistance with payroll compliance and HMRC enquiries.

We aim to make payroll straightforward, helping business owners understand their obligations and prepare for upcoming changes.

11. Prepare for April 2027 With TOPTAX Accountants

The new rules for payrolling employee benefits represent an important change for employers.

Businesses providing company cars, vans, fuel or private medical benefits should review their payroll arrangements well before 6 April 2027.

Preparing early will help ensure that your payroll software, employee records and reporting procedures are ready for the new requirements.

Need help with payroll or HMRC compliance? Contact TOPTAX Accountants today.

TOPTAX Accountants
Accounting | Tax | Payroll | Compliance

Phone / WhatsApp: 07804 646745
Email: info@toptax.co.uk
Website: www.toptax.co.uk

Based in Bradford, West Yorkshire – Supporting Clients Across the UK

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Disclaimer: This article provides general information based on HMRC guidance available as at 27 October 2026. Reporting requirements may vary according to the benefits provided and individual circumstances. Employers should consult current HMRC guidance or obtain professional advice before making payroll changes.