Company cars and health cover to go on payroll in April 2027

From 6 April 2027, an employer who gives staff a company car, a van, fuel for either or private medical cover is due to tax those benefits through payroll each pay day, rather than reporting them on a P11D after the tax year ends. Most other benefits follow from April 2028. HMRC puts the number of employers still reporting benefits after the year end at around 280,000.

This is planned, not yet law. HMRC published draft legislation on 13 July 2026. Draft regulations setting out exactly which benefits are covered are due at the Budget on 28 October, and HMRC expects to publish final guidance for the first phase this autumn. Details could still change.

Five benefits in 2027, most of the rest in 2028

HMRC's interim guidance on mandatory payrolling of benefits in kind lists the first phase, from 6 April 2027:

• company cars

• car fuel

• vans

• van fuel

• employer-provided medical benefits

The change is to how the tax is collected. For cars and vans, our factsheet on how company cars and vans are taxed shows how the taxable value is worked out today. For medical cover it is what the cover costs you.

Most other benefits join in April 2028. Employment-related loans and living accommodation sit outside both phases for now: you can keep reporting them on a P11D or payroll them voluntarily. HMRC's policy paper says mandatory payrolling for them "will be confirmed at a later date".

What changes for staff

Today the tax on these benefits is usually collected through an estimate in the employee's tax code, or after the year ends. From April 2027 it comes off each payslip, alongside their pay. If you want to see how that fits into a normal pay cycle, our note on how a pay run is reported to HMRC covers it.

HMRC will take these benefits out of tax codes automatically, ready for 6 April 2027. Any underpayment from an earlier year stays in the code, though, so some staff will see tax for this year and last year coming off together. HMRC asks employers to explain that this is not tax charged twice, and to avoid the phrase "double taxation".

There is one planned easing. HMRC says that for 2027/28 it will not charge penalties for inaccuracies in payrolled benefits unless the error is deliberate. Late filing and late payment penalties can still apply.

The July 2027 squeeze

Illustration, not a real client. A recruitment firm in Islington pays for private medical cover for 8 staff at £900 a head, £7,200 a year.

Class 1A National Insurance, the employer's charge on benefits, is 15 per cent for 2026/27. On £7,200 that is £1,080, which the firm reports on a P11D(b) and pays by 22 July 2027.

From April 2027, the Class 1A on the 2027/28 cover is paid in real time through payroll: about £90 a month if the cost stays the same. So in the 2027/28 tax year the firm pays last year's £1,080 in July and this year's as it goes, close to twice its usual Class 1A. That assumes the 15 per cent rate stays as it is, which the Budget could change.

Each employee pays tax on the £900 too. At the 20 per cent basic rate that is £180 a year, about £15 a month off each payslip.

Registration: none for the five, a deadline for the rest

You do not need to register to payroll the five benefits in the first phase. To payroll anything else from April 2027, including loans and accommodation, you must register. HMRC's service opens in November 2026 and the deadline is 5 April 2027.

What to do this winter

1. List every benefit on last year's P11Ds and mark the five that move in April 2027.

2. Ask your payroll provider whether its software will report benefits in real time by then. HMRC says it "may not be ready now, but will need to be in place by April 2027".

3. Decide whether to payroll anything else voluntarily, and register between November and 5 April 2027 if you will.

4. Put the July 2027 Class 1A payment into your cash-flow forecast.

5. Tell staff before April how the tax on their benefits will be collected.

Then read the Budget documents on 28 October. The draft regulations setting out the scope are due the same day.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for small businesses. He grew up in West London and worked in finance roles in investment banking, wealth management and private equity, starting at Barclays, before leaving in 2020 to build the firm. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Prince Prajapati on Unsplash.