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Posted: Tue 7th Jul 2026
5 min read
Many small business owners run a car or van through the business or offer private medical cover for staff to hold on to good people. The way the tax on those perks reaches the payslip is about to change.
At the moment, most staff perks are recorded once a year on a form called a P11D, when initially provided, and HMRC collects the tax later the following year.
Thereafter, HMRC tries to include estimated benefits in current year tax codes, therefore collecting the estimated tax during the tax year. From 6 April 2027, HMRC is moving this onto the payroll, so it will be deducted from salaries straight away and not require an estimated amount to be included in tax codes.
The first phase covers five things only: company cars, car fuel, vans, van fuel and employer-provided medical cover. Most other perks follow from April 2028. Loans and living accommodation stay on the P11D for now.
Today, tax on a benefit like a company car is often collected by adjusting the tax code, so more comes out of normal pay.
From April 2027, it comes off the payroll in the year the perk applies. The employer will use the actual value of the benefit in that tax year, divided by 12 for each month.
The amount does not change; sometimes, the timing of tax due for new benefits will be earlier, but there should be improved accuracy from using current values.
The catch: anyone still clearing tax owed from an earlier year keeps paying that through their tax code at the same time. Or where HMRC still includes a benefit in the tax code after it knows the benefit is being taxed through payroll. For some people, there may be double tax on the payslip, so tell affected staff before it lands.
Employers should also plan for a one-off cash flow pinch in summer 2027.
Class 1A National Insurance on 2026/27 benefits reported under the old P11D system will still be payable after the end of that tax year, while employers will already be paying Class 1A National Insurance on benefits being processed through payroll for 2027/28.
It's a one-off overlap, but worth budgeting for now.
Enterprise Nation adviser and founder of On the Spot Accountants, Paula Tomlinson, said:
“Employers and their bookkeepers should be able to adjust fairly easily by including 1/12th of the benefit value in payslips.
“The main risk is for employees. With so many PAYE tax codes already being incorrect, this is another reason for errors to creep in. With frozen allowances on top, it has never been more important for employees to check their PAYE tax codes in detail to avoid an unexpected tax bill later or overpay tax they may never be told about. The best way to ensure that your final tax bill is correct is to prepare an income tax return.”
Tell affected staff before April 2027.
Ask your payroll provider or software whether it will handle these benefits and the National Insurance from April 2027.
Put money aside for the overlapping July 2027 bills.
Advise employees to check and understand their tax codes.
Daniel Woolf, head of policy at Enterprise Nation, said:
"For most small businesses, this won't change how much tax is paid, but it will change when it is paid and how it is reported.
"Businesses that provide company cars, vans or private medical cover should use the lead-in time to check their payroll arrangements. The phased rollout is a sensible approach, but its success will depend on whether the smallest employers can make the transition without additional cost or complexity."
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