If you’re running a small or medium‑sized business in the UK, you probably know the drill: every year, P11Ds mean extra admin, tight deadlines, chasing benefit values and a fair bit of stress. But things are about to change in a big way.

HMRC has confirmed that from April 2027, almost all employee benefits will have to be reported and taxed through payroll in real time, meaning the traditional P11D process will effectively be phased out.

For many employers, this is huge and it’s going to reshape how payroll and benefits administration work across the UK. Let’s break down exactly what’s happening, what it means for your business, and how to get ahead now.

What’s Actually Changing in April 2027?

1. Mandatory Payrolling for Benefits in Kind (BiKs)

From April 2027, all taxable benefits like company cars, medical insurance, accommodation, and more must be processed through payroll. That means:

• The taxable value of benefits is included in monthly payroll
• PAYE tax is applied in real time
• Class 1A NICs are calculated and paid through payroll.

This shift is designed to simplify compliance and modernise HMRC systems.

2. P11Ds Will Largely Be Eliminated

The annual P11D and P11D(b) routine will be replaced for almost all benefits. Businesses will no longer submit year‑end forms for most BiKs, as these details will already be reported through payroll.

3. All Reporting Moves into Real Time (RTI)

Benefits will be reported through the Full Payment Submission (FPS) the same route used for salaries today. HMRC is adding new data fields to support this expanded reporting.

4. Employers Will NOT Need to Register for Payrolling (Mostly)

HMRC will automatically move most benefits into the payrolling system.
The only exceptions requiring registration are:

• Employer‑provided loans
• Accommodation benefits

5. A “Soft Landing” for First‑Year Errors

Good news: HMRC has confirmed that no penalties will apply for accidental mistakes in 2027/28 unless there is deliberate non‑compliance.

Why HMRC Is Making This Change

HMRC says the shift to mandatory payrolling is intended to:

• Simplify the tax system
• Reduce admin burdens for employers
• Improve accuracy
• Avoid year‑end corrections and tax code issues
• Ensure more timely tax collection

With millions of P11Ds filed each year, it’s easy to see why real‑time reporting is the preferred long‑term solution.

What This Means for SMEs

For small and medium‑sized employers, the impact is significant.

✔ Less Year-End Stress

No more P11D submissions, no more last‑minute chasing benefit providers.
Benefits will simply flow through payroll each month.

✔ Better Transparency for Employees

Employees see benefit taxation in real time instead of being surprised at year‑end.
Clients love this especially those wanting clarity on company cars and medical cover.

✔ More Accurate Payroll Data

Real‑time reporting helps businesses stay compliant and reduces the risk of HMRC corrections or tax code adjustments later.

✔ BUT… More Payroll Complexity

Here’s the catch: payroll setups must change significantly.
You may need:

• Updated payroll systems
• Updated benefit provider data flows
• Staff training
• Revised internal processes

If you are not prepared, April 2027 could become quite a headache.

Can I Start Payrolling Early?

Yes! Many businesses are choosing to begin in April 2026 to avoid a crunch in 2027. Voluntary payrolling is already available for most benefits, simply register with HMRC before the tax year starts. For SMEs, moving early has big advantages, including reduced risk and a smoother transition.

What SMEs Should Do Now

1. Review your current BiK setup

Identify which benefits your business offers and how they're currently reported.

2. Speak to your payroll provider (or switch to one that’s ready)

Systems must support FPS benefit reporting and real‑time NIC calculations.

3. Inform employees early

Changes to payslips and tax codes can cause concern - communication matters.

4. Update internal processes

Benefit values must be tracked monthly, not annually.

5. Ask PayCheck to manage the transition for you

We handle compliance, payroll adjustments, employee communication, and system updates, so you don’t have to.

Don’t wait until 2027.
These changes will reshape payroll across the UK and businesses that prepare early will save time, money, and stress.

Although P11Ds will be largely phased out from April 2027, employers still need to complete and submit P11Ds for the 2025/26 tax year, as HMRC continues to require reporting for benefits that were not payrolled during that period. Many businesses are being caught out by the misconception that P11Ds are no longer required, but the obligation remains fully in place for 25/26. To support employers through this transitional year, PayCheck will continue to prepare and file P11Ds for 2025/26, ensuring clients stay compliant and avoid any missed reporting obligations ahead of the mandatory payrolling changes coming in 2027.

Book a call with a PayCheck payroll expert today

Let’s make your transition to mandatory payrolling smooth, compliant and effortless.