Payrolling benefits in kind: phased start from April 2027

Mandatory payrolling of benefits in kind will now arrive in two stages. From 6 April 2027 employers must report company cars, fuel, vans and medical benefits through payroll software and deduct tax in real time. From 6 April 2028 most other benefits follow. Budget 2026 confirmed the phasing, an easement on penalties for the first year and the reopening of the voluntary payrolling service next month. For payroll bureaux and practices that prepare P11Ds, this is the biggest change to employer reporting in years.

What was announced

HMRC’s tax information and impact note says that from April 2027, employers who provide the following must report them through payroll software and deduct tax in real time, alongside other PAYE obligations:

• company cars
• car fuel
• vans and van fuel
• medical benefits

From April 2028, most remaining benefits in kind will be mandated in the same way, except employer-provided loans and accommodation, which HMRC says are particularly burdensome to payroll. Mandatory payrolling of those two will be confirmed at a later date, and existing end-of-year reporting continues for them in the meantime. Benefits for globally mobile employees, estimated at up to 235,000 people, also stay outside the mandate while HMRC works on an approach, and employers will need to register those employees.

The measure was first announced in January 2024. The note explains that stakeholders asked for more time and highlighted the difficulty of payrolling some benefits, which is why the government has moved to a phased start.

Key dates and practical points

• 5 November 2026: the registration service for voluntary payrolling reopens. It will include a facility to payroll Class 1A National Insurance contributions.
• 6 April 2027: cars, fuel, vans and medical benefits must be payrolled.
• 2027-28: secondary legislation will stop penalties being charged for careless inaccuracies in payrolled benefits for this first year.
• 6 April 2028: most remaining benefits must be payrolled.

HMRC estimates around 280,000 employers currently report benefits through end-of-year processes, and receives about 3.5 million P11D forms a year. It expects many employers to payroll their non-mandated benefits voluntarily to avoid running both systems side by side.

What changes for employees

When mandatory payrolling begins, HMRC will remove the current-year mandated benefit from the employee’s tax code so the same benefit is not taxed twice. In the first two years some employees may pay tax on this year’s benefits through payroll while still paying amounts for earlier years through their tax code. HMRC says this relates to different tax years rather than double taxation, but some people may see higher deductions than they expect, and those in difficulty can contact HMRC.

The Finance Bill also changes how classic cars are valued: from 2027-28 the market value will be taken on the first day in the tax year the car is available to the employee.

Company car and van rates

Budget 2026 sets company car tax appropriate percentages for 2030-31. Zero-emission cars rise from 9% to 10%, cars emitting 1 to 50g/km of CO2 rise from 19% to 20%, and all other bands rise by one point, up to a maximum of 40%.

Zero-emission cars are at 4% in 2026-27, 7% in 2028-29 and 9% in 2029-30. All cars emitting 1 to 50g/km move to 18% in 2028-29 and 19% in 2029-30, whatever their electric range.

The van benefit charge and the car and van fuel benefit charges will rise in line with September 2026 CPI, 3.5%, from 6 April 2027. The overview of tax legislation lists figures of £30,200, £825 and £4,310, but the van benefit and car fuel multiplier figures appear to be the wrong way round: in 2025-26 the van benefit charge was £4,020 and the car fuel benefit multiplier £28,200. Check HMRC’s published 2027-28 rates before using them in payroll.

What it means for accountants and payroll bureaux

Decide on voluntary payrolling before April 2027. Employers with a mix of benefits must choose between payrolling everything from 2027 or running payroll for mandated benefits and P11Ds for the rest. Registration reopens on 5 November 2026.

Get the data flowing monthly. Car and fuel benefits depend on list prices, emissions, availability dates and fuel arrangements. Medical cover depends on premiums and joiners and leavers. Fleet and HR data that used to be gathered once a year now needs to reach payroll every pay period.

Use the penalty easement to fix processes, not to defer them. The easement only covers careless inaccuracies in 2027-28. Deliberate errors are not covered, and the full regime applies from 2028-29.

Warn employees about tax code changes. Employees with company cars will see their tax codes change and their net pay reflect the benefit each month. Clear communication will save a lot of queries.

Plan for dual running. Loans, living accommodation and globally mobile employees remain on the old process for now, so many employers will run both systems for some time.

Our guides to benefits in kind and P11D and company car tax explain the current rules. For the wider payroll picture, see payroll changes for 2027-28.

Frequently asked questions

Which benefits must be payrolled from April 2027?

Company cars, car fuel, vans, van fuel and employer-provided medical benefits must be reported through payroll software and taxed in real time from 6 April 2027.

When do other benefits in kind have to be payrolled?

Most remaining benefits must be payrolled from 6 April 2028. Employer-provided loans and living accommodation are excluded for now, and mandatory payrolling for them will be confirmed later.

Will employers be penalised for mistakes in the first year?

Secondary legislation will prevent penalties for careless inaccuracies in payrolled benefits for the 2027-28 tax year. Deliberate inaccuracies are not covered.

Can employers start payrolling benefits voluntarily?

Yes. The voluntary payrolling registration service reopens on 5 November 2026 and will include a facility to payroll Class 1A National Insurance contributions.