Mandatory Deadline & What Employers Must Do Now
The P11D is being phased out. Mandatory payrolling of benefits arrives from April 2027 in a way that touches every UK employer who provides any benefit beyond a basic salary. Here’s the full picture.
What a P11D actually does and why HMRC wants rid of it
A P11D is an annual return employers submit to HMRC for every director or employee who receives a taxable benefit in kind during the tax year. Company car, private health insurance, interest-free loan, living accommodation if you provide it, and if it has a taxable value, it goes on a P11D. The filing deadline is 6 July following the end of the tax year. Class 1A NIC (currently 15%) is paid separately by 22 July.
The problem HMRC has with this system is the lag. An employee gets their benefit in, say, April 2025. HMRC doesn’t see it reported until July 2026. The tax due gets collected through a code adjustment in 2026/27, meaning the employee is essentially paying last year’s tax bill during this year’s pay packets. It’s messy, it’s slow, and it generates millions of code queries and corrections every year.
“The P11D doesn’t just create admin for employers. It creates confusion for employees, and that confusion arrives on payday, which is the worst possible moment.”
HMRC’s stated aim is to simplify tax affairs for around 3 million people and remove the need for 4 million P11D returns annually. Whether you believe it’ll actually be simpler is a separate question, but the direction of travel is settled. The P11D, for most benefits, ends after 2026/27.
Last P11D cycle: what’s due now
The 2025/26 P11D and P11D(b) must be filed by 6 July 2026. Class 1A NIC must be paid by 22 July 2026. Each affected employee must also receive a copy of their P11D information by 6 July. This is the penultimate full P11D year, 2026/27, which is the last, so don’t let compliance slip on this year’s deadline while you’re focused on planning for 2027.
How payrolling benefits actually work
Instead of calculating the annual taxable value of a benefit after the year ends, you estimate it upfront, divide it across your pay periods, and include it in each payslip’s taxable gross. Income Tax is collected by the employee in real time, month by month, rather than through a code adjustment the following year. Class 1A NIC, from April 2027, is paid in real time, too.
Here’s what that looks like for a straightforward example. Say you provide an employee with private medical insurance worth £1,200 a year. Under the old P11D system: value reported in July, tax collected via code the following year. Under payrolling: £100 per month added to taxable gross on each payslip, tax deducted immediately.
Example payslip: April 2027 onwards
Employee with private medical insurance (£1,200/year) and company car (£3,600/year)
Base salary————————————————————————£3,500.00
Private medical (payrolled benefit, 1/12 of £1,200)———————+ £100.00
Company car (payrolled benefit, 1/12 of £3,600)————————+ £300.00
Total taxable gross—————————————————————£3,900.00
Income Tax (approx basic rate)———————————————-(− £438.00)
Employee NIC——————————————————————-(− £279.00)
Net cash pay (salary only, benefits are non-cash)———————–£3,283.00
Benefits are taxable but not paid in cash; the employee still gets their full salary in the bank, but pays more tax to reflect the benefit value. A clear explanation on the payslip is essential.
Have you told your employees yet that their payslips are going to look different from April 2027? If not, the first pay period is going to generate a lot of confused calls.
Side by side: P11D vs. payrolling:
|
Area |
P11D (old system) |
Payrolling (new system) |
|
When benefits are reported |
Annually, by 6 July after the year-end |
In real time, each pay period via Full Payment Submission |
|
When an employee pays Income Tax
|
The following year, via PAYE code adjustment |
Same pay period, month by month, as the benefit is received |
|
When the employer pays Class 1A NIC |
22 July, following the tax year-end |
In real time, alongside payroll (from April 2027) |
|
Software required |
P11D software or HMRC PAYE Online |
Full RTI-compliant payroll software with PBIK functionality |
|
P11D(b) declaration |
Required annually |
Not required for payrolled benefits (only for loans/accommodation) |
|
Employer admin burden |
Annual peak intensity in June/July |
Spread through the year, lighter July, heavier month-to-month |
|
Employee visibility |
Low, they see a code change, often unexplained |
High benefit value appears on every payslip |
|
Corrections after year-end |
Amendments to P11D possible |
Year-end correction process by 22 July, limited window |
The phased timeline and what changed in June 2026
This one’s moved around more than most employers realise. The original plan was April 2026. Then it shifted to April 2027. Then, on 15 June 2026, HMRC announced a further change, a phased introduction that splits the rollout across two stages.
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Now – 6 July 2026 deadline File your 2025/26 P11D and P11D(b) This is the penultimate full P11D year. File by 6 July 2026, pay Class 1A NIC by 22 July 2026, and give employees copies by 6 July. Don’t let planning for 2027 push this filing out of your sights. |
|
6 April 2027 – Phase 1 mandatory Company cars, vans, fuel and medical insurance Mandatory payrolling applies to company cars, car fuel, vans, van fuel, and employer-provided medical benefits from 6 April 2027. Income Tax and Class 1A NIC are reported and paid in real time via RTI. |
|
6 April 2028 – Phase 2 mandatory All remaining benefits (except loans and accommodation) Full mandatory payrolling extends to all remaining benefits, gym memberships, subscriptions, staff entertainment, and all other BIKs. P11D abolished for these categories. Loans and accommodation remain separate for now. |
|
The two permanent exceptions Employment-related beneficial loans and employer-provided living accommodations are excluded from mandatory pay-rolling, as their values fluctuate in ways that don’t fit cleanly into per-pay slip calculations. P11D reporting for these two categories continues after 2028. If your benefits package includes either of these, you’ll be running parallel processes for the foreseeable future. |
Example
A hospitality client came to us in early 2026, a restaurant group in East London, providing company phones, private medical insurance, and a staff accommodation benefit to their management team. When we mapped their benefits against the phased timeline, they had three different reporting regimes to manage simultaneously in 2027/28: medical insurance going onto payroll in April 2027, remaining phone and subscription benefits following in April 2028, and the accommodation benefit staying on P11D indefinitely.
That complexity isn’t unusual for businesses with varied benefits. Honestly, the ones who struggle most aren’t the large companies with dedicated payroll teams; they’re the mid-sized operators who’ve been managing P11Ds informally for years and suddenly have to build a real-time reporting infrastructure from scratch. The phased timetable gives a little more breathing room, but the preparation required is substantial either way.
The cash flow problem nobody warns you about
Here’s what most people miss, and it’s the one that generates genuine complaints from employees in year one. In April 2027, your employees will have two sets of benefit tax hitting their payslips at the same time.
HMRC uses P11D data to adjust employees’ PAYE codes for the following year. So an employee who received benefits in 2025/26 will have their 2026/27 code adjusted to collect that tax. At the same time, from April 2027, they’ll start having 2026/27 benefit values added to their real-time payroll. That’s two years of benefit taxation overlapping in the same pay packets.
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This is a known HMRC consequence, not an error HMRC has confirmed that this double-collection overlap will happen and is expected. It isn’t a mistake. But employees who open their April 2027 payslip and see their net pay drop significantly will absolutely think it is. Communicate this clearly and early before April 2027, not after the first pay run. |
There’s an employer cashflow dimension too. In July 2027, you’ll still owe Class 1A NIC on your 2026/27 benefits (the last P11D year). At the same time, you’ll have started paying Class 1A in real time for 2027/28 through payroll. For businesses with large benefits packages, that’s a significant double payment in a single July. Model this now, not in June 2027.
Your employer preparation checklist
Tick these off. If you haven’t started the 2026/27 tax year, the last full P11D year is your preparation window. Don’t waste it.
-
- File your 2025/26 P11D and P11D(b) by 6 July 2026
- Don’t let preparation for 2027 push this deadline out of view. Late filing penalties apply, and this is still a live obligation.
- Audit every benefit you currently provide and categorise by phase
- Phase 1 (April 2027): company cars, vans, fuel, and medical. Phase 2 (April 2028): all remaining. Permanent P11D: loans and accommodation.
- Confirm your payroll software supports mandatory PBIK from April 2027
- HMRC’s final RTI specification for payrolled benefits is due in the second half of 2026. Verify your software provider is updating their system to comply.
- Model the cash flow impact for July 2027
- In July 2027, you’ll owe Class 1A NIC for the 2026/27 P11D year AND be paying real-time Class 1A on 2027/28 benefits through payroll. Calculate the combined liability now.
- Plan your employee communication strategy
- Employees must understand why their payslips look different from April 2027 and why their net pay might temporarily change due to the tax code overlap. Brief them before April, not after.
- Identify benefits where in-year values won’t be known in advance
- Fuel benefits, variable car usage, and third-party supplier benefits: these require estimated values submitted in-year, with a year-end correction by 22 July. Establish a process now.
- Decide whether to voluntarily register for PBIK in 2026/27
- Some employers may benefit from starting the payroll process voluntarily this year for Phase 1 benefits. Registration for voluntary PBIK for 2026/27 closed in April 2026, but this is still a decision to make for your own planning.
- Brief your HR, reward, and finance teams. This isn’t just a payroll change
- HMRC describes this as a major transformation project requiring buy-in from HR/reward, benefit providers, tax, payroll, and software providers. It needs project ownership, not just a payroll update.
The honest verdict
The phased announcement in June 2026 has given employers a bit more time, and some, particularly those who were sweating the April 2027 deadline for complex benefits, will be relieved. But I’d push back hard on treating this as breathing space to delay preparation.
Phase 1 benefits company cars, vans, and private medical are exactly the ones most common in mid-sized UK businesses. If you have a company car scheme and medical cover, you’re in mandatory payrolling from April 2027. That’s less than 10 months away from when this post is being written. The preparation work, software, processes, employee comms, and cashflow modelling take longer than people expect.
Bottom line
The P11D isn’t going to come back. HMRC has been heading toward real-time benefit reporting since 2016, and the mandatory deadline, even with its delays, is now firm enough to plan around. The businesses that handle this transition cleanly are the ones treating it as a project requiring cross-team coordination, not a payroll software update.
The employee communication piece is the one most employers deprioritise and most regret. A surprised employee whose net pay drops unexpectedly in April 2027 is going to blame their employer, not HMRC. Get ahead of that conversation now. It genuinely takes less time to explain the change proactively than to deal with 40 employee queries after the first payslip lands.
At SKZ Accountants, we’re helping employer clients build the transition plan now, not in February 2027. If you don’t have a clear picture of which of your benefits fall into which phase, what your July 2027 cash flow looks like, and what your employees are going to see on their April 2027 payslip, now is the time to sort it.
Need help navigating the PBIK transition? Talk to SKZ Accountants.
We’re specialist accountants in Ilford working with UK employers through every stage of the payrolling benefits transition, from benefits audits and cash flow modelling to software reviews, employee communications, and ensuring your last P11D year is filed correctly.
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