The P11D has been part of the payroll year for decades. It is going.
In its place, the tax on benefits in kind moves into the payroll itself — calculated and taxed in real time, alongside salary. It is a sensible simplification. It is also going to produce two surprises that employers who have not prepared will feel acutely, and one of them lands in your employees’ pay packets.
What is changing, and when?
Mandatory payrolling of benefits in kind begins on 6 April 2027, having been deferred from the original April 2026 date.
It is being introduced in phases. The first phase covers:
- company cars
- car fuel
- vans
- van fuel
- employer-provided medical cover
Most remaining benefits follow in April 2028. Beneficial loans and living accommodation are excluded for now and stay on the P11D.
So the P11D does not vanish overnight — for a period, employers will be doing both: payrolling some benefits and reporting others on a P11D. That transitional overlap is where the administrative pain sits.
(Timetable as at July 2026. It has moved twice already; we track it.)
Surprise one: your Class 1A National Insurance becomes monthly
Today, Class 1A NIC on benefits is a single annual payment, due by 22 July after the tax year.
Once a benefit is payrolled, the Class 1A on it is reported and paid in real time, every month, through your FPS.
For a business with a fleet of company cars, that is a meaningful change to the shape of your cash outflow — twelve payments instead of one, starting immediately rather than fifteen months after the benefit was first provided.
And in the transition year, employers can find themselves funding both: the monthly Class 1A on newly payrolled benefits, at the same time as the annual Class 1A bill on the prior year’s P11D benefits. That is a genuine cash-flow event, and it is entirely foreseeable.
While you are looking at this: Class 1A follows the secondary Class 1 rate, which rose to 15% in April 2025. If your budgeting still uses 13.8%, it is out of date.
Surprise two: your employees may be taxed twice
This is the one that generates the complaints.
Historically, tax on a benefit is collected a year in arrears, through an adjustment to the employee’s tax code. So in 2026/27, an employee is paying tax on the benefit they received in 2025/26.
When payrolling starts, they begin paying tax on this year’s benefit in real time — while their tax code may still be collecting last year’s.
For a period, the same employee is being taxed on two years of benefits at once. It corrects itself. It is not an error. But to an employee looking at a smaller net pay figure, it looks exactly like one.
Employers who explain this in advance have a conversation. Employers who do not have a queue outside the payroll office.
What should employers do now?
Model the cash flow. Work out what your Class 1A looks like as twelve payments rather than one, and what the transition year does to it.
Get your benefit data clean. Payrolling in real time requires accurate benefit values at the start of the year, not reconstructed the following July. Company car data in particular — CO2 figures, list prices, availability dates — needs to be right and current.
Check your payroll software is ready, and that it can handle payrolled and P11D benefits simultaneously during the overlap.
Tell your employees. Before it happens, not after. A short, plain-English note explaining why their tax may rise temporarily costs nothing and prevents the entire problem.
Review which benefits you actually offer. Some are genuinely tax-efficient. Several quietly cost more than the salary they replaced, and the increased visibility of real-time taxation is a good prompt to check.
Frequently asked questions
When are P11Ds being abolished?
Mandatory payrolling of benefits begins on 6 April 2027, phased — company cars, car fuel, vans, van fuel and employer-provided medical cover first, with most other benefits following in April 2028. Beneficial loans and living accommodation stay on the P11D for now, so the form does not disappear immediately.
Will payrolling benefits change my employees’ take-home pay?
Temporarily, yes — and it catches people out. Tax on benefits has historically been collected a year in arrears through the tax code. When payrolling starts, employees pay in real time on this year’s benefit while their code may still be collecting last year’s, so they are briefly taxed on two years at once. It corrects itself, but tell them first.
How does payrolling affect Class 1A National Insurance?
It moves from a single annual payment due by 22 July to a real-time monthly payment through your FPS. For businesses with company car fleets, that is a significant change to cash-flow timing — and in the transition year you may be paying monthly Class 1A on new benefits while still settling last year’s annual bill.
What is the Class 1A NIC rate?
Class 1A follows the secondary (employer) Class 1 rate, which rose to 15% in April 2025. Any budgeting still based on the old 13.8% rate is out of date and will understate the cost of providing benefits.