If you or your managers have a company car or private medical cover, the paperwork probably arrives once a year. The current process requires employers to calculate any taxable benefits from the previous tax year, informing HMRC by 6 July and then paying the tax a few weeks later. HMRC then adjusts the employee’s tax code to claim the tax they owe. From April 2027, that starts to change, impacting cash flow planning as well as payroll processes
What is changing?
From 6 April 2027, the UK government is introducing mandatory real-time payrolling for common Benefits in Kind (BiK), shifting reporting away from traditional annual P11D forms. It is being phased in:
- From April 2027: company cars and car fuel, vans and van fuel, and employer-provided medical benefits
- From April 2028: most other benefits, which we expect to include things like gym membership and life insurance
- Loans and accommodation stay outside mandatory payrolling and remain voluntary, so directors’ loan accounts are not included
Why 2027/28 needs planning
The next financial year may feel like a double hit. In July 2027 you will still settle the final year-end Class 1A National Insurance bill for 2026/27 benefits. At the same time, Class 1A on newly payrolled benefits starts being paid through the year. Two sets of payments land in one financial year, which is why your cash flow forecasting needs to plan for it.
Your employees may feel it too. Tax on current benefits will come off each payslip, and some may still be settling tax on earlier benefits through their tax code or Self Assessment. For a middle manager with a company car or medical cover, that could mean a noticeable dip in take-home pay for a while. The same pattern is likely to repeat in 2028/29 when the second phase starts.
What to do now
These are changes that cannot be avoided, so it’s important that you start to truly understand the impact and prepare! This is the advice we are sharing with our clients:
- Tell affected employees early. Help them understand what it means for their take-home pay before it appears on a payslip.
- Check which benefits are still active. Nobody should be taxed on something they no longer have or won’t have next year.
- Separate regular from irregular benefits. A monthly benefit is straightforward to payroll. Annual or one-off ones are harder. The change will mean that employers will have to manage benefit values actively throughout the year, and not just review them when the year-end P11D forms are prepared.
- Check your payroll set-up. If you run payroll in-house, you will need to learn how monthly payrolling of benefits works. If you outsource it, the practical side is covered, but telling your people is still on you. Our blog on outsourcing your payroll covers what to look for.
- Add July 2027 to your forecast. Give it a figure, not just a reminder.
These changes may prompt you to review the benefits you offer; if so, speak to an HR or legal specialist. We can help with the tax, payroll and cash flow side, but not your employment terms.
We regularly share advice and tips on our LinkedIn and Facebook pages. Do follow us on those channels too.
If you would like to talk through how this affects your payroll and cash flow, call us on 01252 612484 or email gillian@accountingclarkes.co.uk.
