End of Form P11D: Payrolling of benefits from 6 April 2027

Compulsory payrolling of benefits in kind starts on 6 April 2027. Are you and your payroll software ready?

Employers will be affected in how their weekly / monthly payroll work is performed if employees are provided with benefits in kind.

The end of the old P11D routine - well almost

Each tax year, employers have had to report to H M Revenue & Customs any benefits in kind provided to their employees. Benefits in kind include private use of company cars, vans or other equipment, gym subscription, private medical and dental insurance, interest free loans, excess travel and subsistence costs, other services and transfer of business assets to employees at an undervalue.

Form P11D is the standard PAYE form to complete for each employee who receives benefits in kind in the tax year. Nowadays, paper forms are not completed and the information is normally prepared, provided to employees and HMRC in an electronic format. Forms P11D are prepared after the end of the income tax year on 5 April. They must be given to employees by 6 July. Any Class 1A National Insurance due on the tax value of the benefits must be paid to HMRC, at 15%, by 19 July after the end of the tax year.

Employees pay income tax, at their marginal rates, normally 20% or 40%, on the value of the taxable benefits in kind. Unlike wages and salaries, no employee’s National Insurance, at 8%, is due on benefits in kind. However, employer’s Class 1A National Insurance, at 15%, is due once a year based on the total value of all the benefits provided to employees.

In the first year, that a benefit in kind is provided, the employee will have extra income tax to pay after the end of the tax year of 5 April. This could be collected through the Self Assessment system or probably through a small tax bill / PAYE tax code adjustment to collect the tax over the next tax year. Going forward, employees’ PAYE tax codes for the coming tax year will normally be reduced by the estimated benefits in kind and therefore employees will pay an on-account payment of income tax each pay period.

PAYE tax coding notices for 2027/28 should be amended by HMRC. They should no longer include (most) benefits, as employees will instead be taxed, but no employee's national insurance, directly through the payroll.

From 5 April 2027, the income tax due on the year-end 'P60' gross wages and salary plus the 'P11D' taxable value of benefits in kind will be compared to the income tax paid at source through PAYE in the tax year and will effectively result in an income tax liability / refund. This is normally dealt with through the Self Assessment system or a PAYE tax code adjustment the following year. Of course, employment related income, and benefits, is only one aspect of the annual income tax liability.

The start of new payrolling of benefits in kind

For decades, the P11D process has been familiar work to most accountants / payroll departments, with it being an annual reporting exercise. That is all now about to be replaced by a regular weekly / month process when each payroll is run.

From 6 April 2027, employers will have to ‘payroll’ benefits in kind, for the tax year 2027-28, through their normal payroll software. Employers will have to add the value of the weekly / monthly taxable benefits to employees taxable gross pay when workings out the PAYE deductions for the week/month. This does not mean paying more wages and salaries to employees, just to an increase in the PAYE tax deductions each week / month on the value of employees’ taxable benefits.

Therefore, rather than dealing with the taxation, of most benefits in kind, at the end of the tax year, and where for small employers this was passed to their company accountant to prepare and report to HMRC after year-end, it will become part of the regular payroll preparation process.

Employers will initially have to estimate the taxable benefits in kind for each employee, divide this into pay weeks / months and put the value into a box on their payroll software for each employee. As changes arise, employers will have to adjust the taxable benefit in kind boxes in their payroll software. It is understood that an adjustment to the reported employees’ benefits in kind may have to be made, after the end of the tax year, for any differences identified to the in-year reported benefits in kind.

This may sound like a straight forward administrative change. However, it will change what and when benefits in kind information must be obtained, calculated, processed and reported through the payroll every pay period.

From annual administration to monthly discipline

Under compulsory payrolling of benefits in kind, employers will have to stay on top of new, changing and ceasing benefits in kind throughout the tax year. This could be a new company car, a change in the medical insurance premium and promptly dealing with employees’ benefits for starters and leaves.

Employers will have to understand that benefit data can no longer be something to think about once a year after the end of the year. Payroll departments will therefore need to review and update payroll records for changes in benefits regularly.

Annual information statements

It may have been sensible for HMRC to have redesigned Forms P60 and P45. The two forms could have then shown the payrolled benefits provided by each employer. After all, the gross pay and any benefits provided have already been payrolled and subject to PAYE together each pay period.

A Form P60 is provided to an employee who is still in employment with a particular employer at the end of the tax year on 5 April. Form P45 is provided to each employee who leaves employment during the tax year. However, HMRC have designed to provide the benefit information on a new style form.

Therefore, after the end of each tax year, employers will have to prepare a new ‘annual information statement’ to replace Form P11D for most benefits now payrolled. The statement, for each employee, will show details of all benefits payrolled in the tax year. The statement must be given to the employee by the employer by 1 June following the end of the tax year.

Start planning

Those employers under the most pressure in the coming year or two will be those that are unaware of the legislation and possibly only discover the issues one or two years later when HMRC starts enquiring about lack of benefits in kind reported to them by employers or employees start asking for their annual P11D, when such forms will generally cease to be issued after 2026-27, to complete their own Self Assessment Tax Returns. This will lead to late filing penalties, unexpected tax bills and interest.

Accordingly, employers will have to pay income tax for employees that may have left and where the employees’ net pay was not reduced each pay period for the tax due on their benefits in kind. The unpaid taxes will fall on employer to pay.

Unless employers chose to voluntarily payroll benefits, for tax years up to 2026-27, they will have to prepare and file Forms P11D and Form P11D(b) for all tax years up to and including the 2026-27 tax year, with a final filing deadline of 6 July 2027 and payment of Class 1A National Insurance by 19 July 2027.

Some individuals 'working' for an employer may receive no wages or salary, but they may receive benefits in kind only e.g. a company car or medical insurance. The individual will have to be put on the payroll, just to reported the benefit(s) provided to them.

Form P11D(b) is an employer’s annual declaration to HMRC. It summarises the total taxable value of all benefits reported on individual employees’ Forms P11D. It then declares the total Class 1A National Insurance Contributions due on all employer provided benefits in kind in the tax year just ended. A modified Form P11D(b), and its annual declaration, will be retained, for 2027-28 and onwards.

The Class 1A National Insurance due will be declared, along with other PAYE (income tax, National Insurance, student loan deductions etc), through the normal employer Real Time Information (RTI) and Full Payment Submission (FPS) process each time the payroll is run. The resultant PAYE, and Class 1A, due will be payable monthly, or quarterly for smaller employers.

Benefits in kind on beneficial loans (overdrawn / interest free directors’ loans) and accommodation will remained outside the scope of payrolling, though these can be voluntarily payrolled if the employer wants to calculated the benefit each time the payroll is run. Generally, a modified Form P11D reporting of these latter two kinds of benefits will be required after each tax year end, if required.

Not all payrolls are run monthly. Benefits do not always arise to a year ending 31 March / 5 April, to coincide with the tax year end, and so a particular benefit's cost would have to be included partially in one tax year and partially in the next tax year.

Weekly payrolls may be run for weeks 53, 54 or 56 pay days every few tax years. Therefore, the annual benefit may have to be divided and accounted for over say 52 weeks with nothing declared for week 53, 54 or 56 etc. It is therefore essential to ascertain the number of payroll runs that the benefits will be accounted for at the start of the tax year.

Employers will have to be alert to changes in benefits during the tax year, starters and leavers with pro-rated benefit calculations, employees leaving but still receiving benefits after their final pay day, new benefits arising or them being discontinued. Therefore, good communication will be essential between the payroll preparers and other departments of the employer and/or with external payroll providers like accountants.

Speak to your payroll software providers and start finding out how you will have to report the benefits in kind.