The P11D won't vanish all at once. It shrinks in stages, and for now beneficial loans and employer-provided living accommodation are still reported on it. This guide sets out what's changing, what stays the same, and how employers, property companies and directors can get ready.
Key Takeaways
What is Mandatory Payrolling of Benefits in Kind?
Payrolling a benefit means reporting its taxable value through payroll each pay period, rather than on a P11D once the tax year has ended. The value goes into your Full Payment Submission (FPS), so the employee pays the tax as they're paid instead of later through a tax code adjustment.
Now (P11D route) | From 2027/28 (Payrolled route) |
|---|---|
Reported after the tax year | Reported every pay period |
Uses P11D and P11D(b) | Uses the Full Payment Submission (FPS) |
Tax collected later through a tax code | Tax collected through payroll as the employee is paid |
Class 1A NIC paid annually | Class 1A NIC paid through payroll during the year |
One thing stays the same:
Whether the benefit is taxable at all. A company car or private medical insurance is still taxable either way. Mandatory payrolling changes only how and when the benefit is reported and the tax collected.
When Does Mandatory Payrolling Start? The Phase 1 & Phase 2 Timeline
Phase | Start date | Benefits Included | Status |
|---|---|---|---|
Phase 1 | 6 April 2027 | Company cars, car fuel, vans, van fuel, employer-provided medical benefits | Confirmed, final detail expected with Autumn Budget 2026 |
Phase 2 | 6 April 2028 | Most other benefits in kind, excluding loans and accommodation | Confirmed in principle, technical detail still being developed |
Loans and accommodation | Date not yet set | Beneficial loans and living accommodation | Remain on P11D or voluntary payrolling |
Which Benefits Are Included in Phase 1?
Which Benefits Move to Mandatory Payrolling in Phase 2?
The Phase 2 of mandatory payrolling of benefits list isn't confirmed in the same detail as Phase 1, so treat it as provisional until HMRC publishes more guidance.
From 6 April 2028, mandatory payrolling is expected to extend to most other taxable benefits not covered in Phase 1. Beneficial loans and employer-provided living accommodation are left out for now and will keep being dealt with separately.
In practice this is likely to sweep in the other taxable benefits currently reported through the P11D, but wait for HMRC's final Phase 2 guidance before you rely on a fixed list.
The extra year gives HMRC and payroll software providers more time to handle this wider, more complex group of benefits. And if you'd rather get ahead, you can already payroll many benefits voluntarily.
Do Loans & Living Accommodation Still Need a P11D?
Yes. Beneficial loans and employer-provided living accommodation still go on a P11D. HMRC's current guidance makes clear that these benefits can't be payrolled under the existing payrolling benefits service.
The reason is partly practical but also legislative. Loan balances can move during the year, and accommodation benefits can turn on rental values and running costs. Those figures are calculated on a basis that does not currently support a per-pay-period calculation, and HMRC has confirmed it is not amending this legislation as part of the current mandation, so both benefits remain outside mandatory payrolling for now.
Why HMRC is Making Mandatory Payrolling of Benefits
HMRC wants to modernise how benefits are reported and make tax collection more accurate. Taxing benefits through payroll as they're provided means employees are less likely to end up with wrong tax codes or a surprise bill later on.
For employers, the aim is to cut down the year-end P11D paperwork. The trade-off is that your payroll data has to be accurate and up to date all year round, not just at the year end.
How Mandatory Payrolling Affects Property Companies & Directors
For small property companies and SPVs, this change lands closer to home. Many run with one or two directors, no HR team, and fairly basic payroll. If the company provides a director's car, van or private medical cover, Phase 1 applies from 6 April 2027.
That means payroll stops being a once-a-year P11D job. Benefits have to be reported every pay period, so your payroll records need to stay accurate right through the year, not just at year end.
WORK WITH UK PROPERTY ACCOUNTANTS
If your company provides a director's car, van or private medical cover, Phase 1 affects you from April 2027. UK Property Accountants can review your payroll and P11D setup now and get you ready before the switch.
Worked Example: Payrolling a Company Car Benefit for a Property Company Director
Scenario: A director of a property SPV has a company car with an annual benefit value of £6,000. The company runs monthly payroll.
Calculation: You divide the annual benefit value by 12. £6,000 ÷ 12 = £500. That £500 is added to the director's taxable pay each month and taxed through payroll, rather than reported once on a P11D after the tax year ends.
Result: £500 of taxable benefit goes onto the director's pay each month, and the tax comes off through payroll as they're paid.
Should You Prepare Now or Wait for Mandation of Payrolling of Benefits In Kind?
The deadline to register for voluntary payrolling for the 2026/27 tax year has already passed. HMRC says employers can no longer use the service to register or change how they report benefits for the current tax year.
One thing worth understanding is the possible cash-flow effect in the switch year. An employee may end up paying tax on the current year's benefit through payroll while HMRC is still collecting tax linked to an earlier year through their tax code. That overlap can increase the amount of tax deducted during the transition, though the amount collected from a single payment is capped by the existing 50% overriding limit under the Income Tax (PAYE) Regulations 2003, with any uncollected balance carried forward to later pay periods or collected after the tax year via HMRC's P800 or Self Assessment process.
- You can check whether your payroll system is ready
- You control the timing instead of rushing later
- You can warn directors or employees about the transition-year tax effect
What Happens to Class 1A National Insurance Under the New Rules?
For property companies, this is a cash-flow and planning point. The current single annual Class 1A bill for Phase 1 benefits moves to in-year reporting through payroll, so finance teams should factor this into monthly cash-flow forecasts rather than budgeting for one annual payment. Benefits that remain outside mandatory payrolling such as loans and living accommodation continue to have their Class 1A NIC reported annually via P11D(b) in the usual way.
How to Prepare Your Property Business Before April 2027
- List every benefit currently on your P11D. You need to know which ones fall into Phase 1 and which can wait
- Check that your payroll software can report benefits in real time. If it can't handle benefit data on the FPS, find out when it will, or what your alternatives are
- Model the monthly Class 1A NIC. Move it out of an annual line and into your monthly cash-flow forecast
- Plan how you'll explain the change to any affected director or employee, particularly the double-tax year
- Decide whether to outsource. With full penalties applying from 2028/29, an experienced payroll and P11D service leaves less room for error during the switch
Frequently Asked Questions
No. A P11D isn't a payslip. A payslip shows pay and deductions when an employee is paid. A P11D is an employer form for reporting taxable expenses and benefits that haven't been payrolled. HMRC says employers must report taxable expenses or benefits either through payroll or online at the end of the tax year.
In 2026/27, taxable benefits still have to be reported to HMRC. If a benefit is payrolled, its taxable value is added to pay and taxed through payroll. If it isn't, the employer reports it on a P11D after the tax year ends.
The main confirmed 2026 change from HMRC is that employers can no longer use the payrolling benefits service to register, cancel a registration, or change how they report benefits for the current tax year. The service is now open only to employers who registered before 6 April 2026.
HMRC first published its payrolling benefits guidance in 2014. Payrolling benefits was introduced on a voluntary basis in April 2016. Reporting certain benefits in kind through payroll is now becoming mandatory in phases, beginning 6 April 2027, with the remaining benefits following from 6 April 2028.
How UKPA Can Help?
The P11D isn't gone yet, but the process around it is changing fast. UK Property Accountants can review what still belongs on your P11D, what's moving to payroll, and when.
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