If your company gives anyone a company car, a van or private medical cover, the way you report and pay tax on it is about to change. That includes you, if you're a director. HMRC has spent recent weeks filling in the detail of its plan to make payrolling of benefits in kind mandatory. A new registration service also opens next month, in November 2026. With less than six months until the first phase starts, now is a good time to get ready.
What's new this autumn
At the start of October, HMRC updated their draft interim guidance on mandatory payrolling of benefits in kind and expenses to confirm that employers will be able to voluntarily exclude 'globally mobile employees' from the mandatory reporting requirements that will apply from 6 April 2027 through a new service that will be available from November 2026. This follows HMRC's 31 July update, which confirmed that the voluntary registration service will be reopened in November 2026 to register to payroll all non-mandatory BiKs (including loans and accommodation) from April 2027.
The detail matters because the original plan has changed. The government had previously intended mandatory payrolling to apply to almost all benefits from April 2027. However, following consultation with employers and software developers, HMRC announced in June 2026 that implementation would be phased.
The two phases at a glance
- Phase 1, from 6 April 2027: company cars, car fuel, vans, van fuel and employer-provided medical benefits.
- Phase 2, from April 2028: mandatory payrolling of most other BiKs will be introduced from April 2028. This excludes loans and accommodation which will remain voluntary.
Until a benefit comes into the mandatory regime, you'll keep reporting it on a P11D unless you choose to payroll it voluntarily.
What payrolling actually means
Today, most employers report benefits after the end of the tax year on form P11D. HMRC then collects the employee's tax by adjusting their tax code, and the employer pays Class 1A National Insurance in one lump sum each July. From April 2027, for Phase 1 benefits, the FPS will carry the taxable values of BIKs and expenses so that Income Tax and Class 1A NIC can be reported at each payroll date throughout the tax year, rather than once a year on a P11D. You'll also need to send more data than before. Your payroll submissions will need separate data items for cars (including make and model, CO2 emissions, zero-emissions mileage, cash equivalent and fuel details), vans, and private medical benefits.
Size makes no difference. Small and micro employers aren't exempt. If your limited company provides any Phase 1 benefit, even just one electric car for a sole director, it will need to payroll it.
Do I need to register?
For Phase 1 benefits, no. Employers do not need to register to payroll the phase 1 mandatory benefits, cars, car fuel, vans, van fuel and medical benefits, from April 2027. HMRC will automatically remove these benefits from affected employees' tax codes ahead of 6 April 2027.
You only need to register if you want to start payrolling other benefits early. The registration service is expected to open in November 2026, and employers wishing to payroll those benefits from April 2027 must register by 5 April 2027. If you'd rather move everything onto payroll in one go than run payroll and P11Ds side by side, this is worth considering.
The cash-flow catch in 2027
This is the point many small companies miss. You'll still file P11Ds for the current tax year, 2026/27, as usual. That means a P11D(b) due by 6 July 2027 and the Class 1A payment due by 22 July 2027. Employer Class 1A National Insurance for 2026/27 is 15% of the taxable value of benefits. But from April 2027 you'll also be paying Class 1A on Phase 1 benefits month by month through payroll. So in the first half of 2027/28 you'll pay last year's bill and this year's at the same time. Plan for it in your cash-flow forecast now.
Employees will feel the change too. Tax on their company car or medical cover will come straight out of each payslip rather than through a reduced tax code, so their take-home pay may change from April. A short note to staff before then can save some awkward conversations.
What to do now
- List every benefit you provide, who gets it and its taxable value. Then sort them into Phase 1, Phase 2, and loans or accommodation.
- Check your payroll software. Ask your provider when it will support the new benefit fields and real-time Class 1A reporting.
- Collect car data now. For each car you'll need the CO2 emissions, list price, fuel type and the date it was made available.
- Decide on voluntary registration for other benefits once the service opens in November. The deadline is 5 April 2027.
- Budget for the July 2027 overlap between the final P11D Class 1A bill and real-time payments.
- Look out for the Autumn Budget on 28 October 2026. HMRC has said more guidance and software specifications are on the way. Make sure your plans reflect the latest position.
If you'd like help setting up payroll or reviewing how you provide benefits to directors and staff, have a look at our accounting and payroll services.
How MyTaxLead can help
We can review the benefits you currently provide, set up your payroll correctly for April 2027 and plan for the cash-flow overlap so nothing catches you out. We'll also tell you whether a different way of providing benefits could cut the tax bill for you and your team. Get a free, no-obligation quote and we'll get you ready well before the deadline.