HMRC is making payrolling benefits mandatory for employers from April 2027. Typical benefits may include private medical and health care, company cars, subscriptions, and larger gifts to employees.

Jill & Michelle are Accountability’s Payroll dream team!

Payrolling benefits is an alternative way of processing these perks through the monthly payroll instead of dealing with the dreaded P11ds!

The traditional method:

After the tax year end, employers would collate all benefits paid to their employees, calculate the cash equivalent of these and how much tax and National insurance are due to HMRC for the benefits in the previous tax year.

Employers would process the P11Ds, send these to HMRC, send copies of the P11ds to each employee and then pay the P11d (b)s – which is the employers National Insurance on these benefits.

Then, HMRC would recoup the tax from the employees by amending their tax codes, usually in August. This all happens long after the time in which the employees were actually enjoying their benefits, and employers are essentially reporting and paying taxes in arrears.

How payrolling benefits works:

Payrolling Benefits would streamline this process and tax the benefits monthly in real time as employees are receiving them from employers.

To set these up, the cash equivalent of the benefit is calculated, divided by the number of pay periods – usually 12 months in the year – and added to taxable pay.

This notional tax on the benefit would be deducted each month meaning less of a direct impact on the employee and it would be done in real time.

The employer would still have the class 1A NICs to pay annually on the P11d (b) at the end of the tax year. But, the onerous P11ds for employees will be replaced by this monthly notional pay and a simple submission at the end of the tax year. This eliminates the need for most P11d forms, reduces tax code notices and removes the need for P46 car forms.

And one of the lovely things about payrolling these benefits is the much smaller impact this has on the employees earnings as the tax is spread out over the course of the year.

How can we help?

In order to be able to payroll benefits in this next tax year 2026/27 you must register the benefits to HMRC ahead of the beginning of the tax year, i.e. before April 2026. Previously, employers would have had to do this themselves – but now HMRC allow your payroll provider to act as an agent and apply on the employer’s behalf.

At Accountability Edinburgh, several of our clients already payroll their benefits and if you would like to join them and get ahead of the game too, please do reach out to us and we will set the wheels in motion!