From 6 April 2027 the way employers report employee expenses and benefits will change significantly. The current process familiar to many involves reporting expenses and benefits via forms P11D and P11D(b) following the end of the tax year.
How it works at the moment
Employees are issued with a copy of their P11D (detailing their taxable benefits) and HMRC adjusts the employees' tax code to collect the tax due on those benefits.
Employers submit a P11D(b) confirming that all expenses and benefits have been reported and detail the Class 1A National Insurance that is due and payable by 19 July.
How it will work from 6 April 2027
From 6 April 2027, most benefits will be reported through the payroll using real-time reporting in the same way that reporting pay is currently reported. Employees will pay tax on taxable benefits throughout the year rather than after the year end and not via PAYE coding adjustments or self-assessment.
or example, if an employee has a company car with a cash equivalent value of £4,800 and is paid monthly, an amount of £400 (£4,800 ÷ 12) will appear on the employee's payslip and be taxed every month.
Employers will also pay Class 1A National Insurance contributions in real-time throughout the year rather than in July following the tax year. So, in the example above, Class 1A National Insurance on £400 would be reported and paid each month.
This will see the end of the yearly P11D for most benefits and form P11D(b) will effectively be replaced by real-time submissions. From 2026/27 they will only be used where an employer provides employment related loans (e.g. overdrawn director loan accounts below the official interest rate), and employer provided living accommodation and opts not to payroll them. These two benefits will not be mandatory to payroll in April 2027.
What else should I beware of
As the systems transitions in July 2027 you will be paying Class 1A National Insurance Contributions for benefits provided in 2026/27 at the same time as Paying Class 1A for benefits provided from April 2027 and obviously this will have an impact on cashflow.
How employers should prepare for mandatory payrolling
Make sure you are aware of all benefits provided to employees.
Review your software to ensure that it can handle reporting benefits in real-time.
Communicate with your employees about the changes to the way in which they will pay tax on their benefits in kind. Make it clear that they will be paying tax on their benefits in kind as they receive them and that they will no longer have a deduction in their tax code on the benefits for the current year. However, if they owe tax on benefits provided in 2026/27 this may appear in their 2027/28 code so that in 2027/28 they will be paying both this tax and that on benefits provided in 2027/28.