Payrolling of benefits delayed until 2027

P11D returns staying for another year: HMRC delays payrolling of employment expenses again

Before the bank holiday, HMRC confirmed a further delay to the rollout of mandatory payrolling for employment benefits, pushing it back from April 2026 to April 2027. This marks the second time the change has been postponed and means employers will need to continue completing P11D and P11D(b) forms for at least two more years.

What’s changing, and when?

As part of HMRC’s long-term plan to “simplify” and modernise the UK tax system, employers who provide taxable benefits in kind (such as company cars or health insurance) will eventually be required to report those benefits, and pay Class 1A National Insurance, through payroll every month (or week if you run a weekly payroll).

This helps get around some of the crazy errors staff have in their tax codes that cause much frustration, though of course, any new system will come with its own teething problems.

This change, now planned for 6 April 2027, will eliminate the need for most P11D and P11D(b) forms. Instead, benefits will be taxed through payroll each month via the Full Payment Submission (FPS), alongside salaries and regular PAYE deductions.

Why the delay?

The official line is that HMRC and software providers need more time to ensure systems are fit for purpose. It is also thought that with sole traders and rental owners coming into the Making Tax Digital (MTD) system for Income Tax in April 2026, HMRC doesn’t have the capacity to bring both changes into place simultaneously.

Another factor is the strain payroll software providers have faced, especially during the COVID years, as they had to rapidly adapt to changes in the payrolling tax system. Some even exited the market. So from their perspective, this delay may be a welcome move.

That said, some businesses have already adopted payrolling voluntarily.

What does this mean for employers?

For the 2025/26 and 2026/27 tax years:

• Employers must continue submitting P11D and P11D(b) forms unless they’ve already opted into voluntary payrolling of employee benefits.
• Class 1A NIC will still be paid annually in July, following submission of the P11D(b).

From April 2027:

• Most taxable benefits must be reported and taxed in real time through payroll.
• Class 1A NIC will be calculated and paid via payroll, not after year-end.
• P11Ds and P11D(b)s will only be needed for limited exceptions, such as interest-free or low-interest loans and employer-provided accommodation (though even these can be payrolled voluntarily from 2027).
• Benefits reported under a PAYE Settlement Agreement (PSA) are unaffected.

Already payrolling benefits voluntarily?

You’re ahead of the game but there will still be changes.

Currently, voluntary payrolling only covers income tax, while Class 1A National Insurance is still calculated and paid separately after the tax year via a P11D(b). From April 2027, that will change. Class 1A NIC will also be collected in real time through payroll, alongside income tax, removing the need for most year-end submissions.

Additionally, benefits that previously couldn’t be payrolled, like interest-free or low-interest loans and accommodation, will be eligible for voluntary payrolling from 2027. This gives employers greater flexibility and may reduce admin further.

What should you do now?

While this change has been delayed, it’s still coming, and the prep work is worth starting early:

1. Check your payroll software: Does it support payrolling benefits and will it be ready for full Class 1A NIC reporting?
2. Educate your team: Employees may see changes to their payslips or tax codes. Make sure they know what to expect.
3. Get your data in shape: Payrolling relies on accurate, up-to-date benefit information for each pay period. Mistakes can mean penalties or incorrect pay.
4. Review your benefits offering: With this shift to real-time reporting, now’s a great time to assess whether your current benefits are still cost-effective and valued by staff.

If you’d like help preparing for these changes or support with existing P11Ds, we’re here to help. Get in touch with our team to chat through your next steps.