P11Ds are done, now what: reporting benefits through payrolling

P11Ds are done, now what: reporting benefits through payrolling

For decades, taxing employee benefits meant the P11D. Company cars, private medical insurance, interest-free loans, and gym memberships were reported after the tax year ended, and the tax was collected later through coding notices. From April 2026, that system ends for most benefits. Payrolling benefits in kind becomes mandatory, which means the tax is collected through the payroll in real time. Here is what employers need to do before the switch.

What is changing in April 2026

From the start of the 2026-27 tax year, employers must report most benefits in kind through their Real Time Information payroll submissions. The cash equivalent of each benefit is added to the employee's taxable pay each pay period, and income tax is deducted through PAYE as the year goes on. The P11D and the P11D(b) disappear for those benefits. Employer National Insurance on benefits is still reported and paid separately. Nothing about what is taxable changes. What changes is the timing: tax that used to be settled after the year end is now collected month by month, which is fairer on employees but demands far better information flow inside the business.

Which benefits move, and which do not

Nearly everything that used to sit on a P11D moves into the payroll: company cars, private medical cover, beneficial loans, accommodation, and subscriptions paid for employees. The exceptions are narrow, so check the current HMRC guidance rather than assuming a benefit can stay off the payroll. In particular, confirm the position for employment-related loans and living accommodation, where transitional details matter. The default assumption should be that every benefit you provide is in the payroll from the first pay run of April 2026 unless you have a clear reason it is not.

Getting the values right, every pay period

Payrolling only works if the benefit values in the payroll are correct. Each benefit needs its cash equivalent loaded into the payroll software, and that value needs updating whenever the benefit changes: a company car swapped in October, an employee joining the medical scheme in January, a loan repaid mid-year. Under the P11D system, all of this was gathered up once a year. Under payrolling, the information has to reach payroll every month. Nominate one person to own benefit data, and set up a simple monthly check between HR, whoever administers the benefits, and the payroll team. Catch changes in the pay period they happen, because correcting them later means amended submissions and confused payslips.

Check your software now, not in March

Most mainstream payroll packages already support payrolling of benefits, but support is not the same as set up. Confirm your software handles each benefit type you provide, run a test payroll with benefits included, and check the figures against what the P11D would have shown. If you outsource payroll, ask your provider now how they are handling the transition and what information they need from you each month. April 2026 is a hard start date. Discovering in March that your software cannot handle beneficial loans is a problem you do not want.

Tell your employees before their payslips change

Employees will see the difference on their payslips: tax on benefits deducted through PAYE during the year instead of through a tax code change afterwards. The total tax is the same, but the presentation is new, and unexplained deductions generate queries. Send a short note with the March payslips explaining what is changing, why the payslip looks different, and that nothing extra is being charged. Show one example of a benefit line so people recognise it in April. A page of plain explanation now saves the payroll team a month of questions later. For support through the transition, from benefit audits to monthly payroll, Finex Outsourcing provides outsourced payroll and finance support for UK employers.

The pre-April action list

Audit every benefit provided to every employee. Confirm the cash equivalent of each one. Register for payrolling through the route HMRC requires. Load the benefits into payroll software and test the calculations. Agree the monthly information flow between HR and payroll. Draft the employee communication. Work through that list over the winter and the switch is straightforward. Leave it until spring and it is a scramble against a statutory deadline.

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