Guide for employers and company directors

Payrolling company cars from April 2027: what do employers need to do?

From 6 April 2027, the tax on company cars, vans, fuel and medical cover moves out of the year-end P11D and into your monthly payroll. If your business provides any of them, including to you as a director, your payroll needs to be ready before then. Most other benefits follow in April 2028.

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By Joe Gilbert ACMA CGMA, Client Finance Director at Elm Financial Solutions. Checked against GOV.UK on 9 November 2026. Last reviewed November 2026.

What is changing

Benefits move from the P11D into payroll

Confirmed at the Budget on 28 October 2026. The legislation will be in Finance Bill 2026-27.

Which benefits, and when

From 6 April 2027: company cars, car fuel, vans, van fuel and employer-provided medical benefits such as private medical insurance. From 6 April 2028: most other benefits. Employment-related loans and living accommodation stay optional.

Tax each payday

The taxable value of the benefit is added to the employee's pay each payday and taxed through PAYE. HMRC will take these benefits out of employees' tax codes before 6 April 2027.

National Insurance moves too

The company's Class 1A National Insurance at 15% on these benefits is reported through payroll each payday and paid during the year, instead of in one payment the following July. HMRC has still to confirm the exact payment rules.

Worked example

What it looks like for one employee

Take an employee with a fully electric company car with a list price of £40,000, available to them all year. In 2027 to 2028 the taxable benefit is 5% of the list price, which is £2,000 for the year.

From April 2027 the payroll adds £166.66 a month to the employee's pay for Income Tax (HMRC rounds down). For a higher rate taxpayer that is about £66.66 of extra tax a month, deducted as they go, rather than collected later through a tax code estimate.

The company pays Class 1A National Insurance of £300 for the year, about £25 a month, through payroll. Medical cover works the same way: a policy costing the company £1,200 a year adds £100 a month to the employee's taxable pay.

If pay is low

Payroll cannot take more than 50% of an employee's pay in tax in any pay period. Anything it cannot collect is carried forward, and whatever is still outstanding at the end of the year is collected by HMRC afterwards. This matters for directors who take a small salary and have a company car.

Cash flow

Expect a double payment in July 2027

The 2026 to 2027 tax year still uses the old system. P11D forms and the P11D(b) are due by 6 July 2027, and the Class 1A National Insurance for that year must be paid by 22 July 2027.

By then you will already be paying Class 1A on 2027 to 2028 benefits through payroll. HMRC itself warns that in July 2027 you pay last year's bill in one go on top of the new in-year payments, and says to budget for it.

Plan for it now

Put the July 2027 payment in your cash flow forecast. For a business with five £40,000 electric company cars, last year's Class 1A bill alone is £1,200, on top of the normal in-year cost.

Watch out for

Where employers get caught out

The rules are simple. The admin is where mistakes happen.

Changes during the year

A new car, a car handed back, a change of fuel type or an employee leaving all change the benefit. Tell your payroll as soon as you know, so the new value is spread over the rest of the year's paydays.

Employees who seem to pay twice

Some employees are still paying off tax on earlier years' benefits through their tax code. From April 2027 they will also pay tax on this year's benefit each month. Explain this before April, so it does not look like a mistake.

Fuel

Car fuel benefit is a fixed charge, but whether it applies depends on the private fuel a driver has had and anything they pay back. As HMRC suggests, agree payroll cut-off dates with your fuel card supplier and drivers.

Other benefits in 2027 to 2028

Benefits outside the first phase still go on a P11D for 2027 to 2028, unless you register to payroll them voluntarily. Registration is open now and closes on 5 April 2027.

Before and after

How a company car is taxed

For cars, vans, fuel and medical cover from 6 April 2027.

Until April 2027: the P11D

Benefit reported after the year end, by 6 July

Employee taxed through an estimate in their tax code, with any shortfall collected in later years

Class 1A National Insurance paid in one go by 22 July

From April 2027: through payroll

Benefit reported in payroll every payday

Employee taxed on the actual benefit as they go

Class 1A National Insurance paid through payroll during the year

Checklist

Get ready before 6 April 2027

List every benefit you provide
Include anything you provide to directors as well as staff. Note which fall in the first phase: cars, vans, fuel and medical cover.
Check your payroll software
Ask your software provider whether it can report benefits in payroll from April 2027, and what set-up it needs from you.
Gather the car details
For each car you need the list price, CO2 emissions and fuel type, the dates it was available, and anything the employee pays towards it. Payroll the value after those payments.
Decide about your other benefits
Either keep them on a P11D for 2027 to 2028, or register to payroll them voluntarily by 5 April 2027. If you do, the Class 1A on them goes through payroll too.
Tell your employees
Explain that the tax will come out of their pay each month from April, that their tax code will change, and why some may appear to pay twice for a while.
Budget for July 2027
Add the 2026 to 2027 Class 1A payment, due by 22 July 2027, to your cash flow forecast alongside the new in-year cost.

See our payroll service Electric company car guide

Common questions

Payrolling benefits: your questions answered

Does this apply to me as a director of my own company?

Yes. If your company provides you with a car, van, fuel or medical cover, it goes through the company's payroll from 6 April 2027, even if you only take a small salary. There is no exemption for small companies.

What if the employee pays towards the car or fuel?

Payroll the taxable value less what the employee is expected to pay. Employees have until 6 July after the tax year to make good, and the employer then has until 22 July to correct the figures through payroll.

We only provide something like gym membership. Does this affect us yet?

Not in April 2027. Most other benefits come into payroll from 6 April 2028. Until then they stay on a P11D, unless you choose to payroll them voluntarily.

Do we still need P11D forms for 2026 to 2027?

Yes. The P11D forms and the P11D(b) for 2026 to 2027 are due by 6 July 2027, and the Class 1A National Insurance for that year must be paid by 22 July 2027. You may also still need a P11D for 2027 to 2028 for any benefits you do not payroll.

Will we be fined if we get it wrong in the first year?

For 2027 to 2028, HMRC has said it will not charge penalties for inaccuracies in payrolled benefits unless there is evidence of deliberate non-compliance, and none where you use a reasonable estimate. Normal late filing and late payment penalties still apply.

What about employees who work abroad?

Employers can keep benefits for globally mobile employees out of payrolling by registering those employees with HMRC. Their benefits then stay on a P11D.

What about loans and accommodation for employees?

They do not have to go through payroll. You can choose to payroll them voluntarily if you register in time.

Does this change how much tax is paid?

No. The value of the benefit and the rates of tax and National Insurance are the same. What changes is when the tax and Class 1A are paid and how they are reported.

Talk to Elm

Provide company cars or medical cover? Let's get your payroll ready

We will check which benefits you provide, set up your payroll for April 2027 and plan the July 2027 cash flow.

Book a no-obligation chat Ask AI a quick question

Call 07966 795440 or email info@elmfinancial.co.uk. Based in Matlock, Derbyshire, working with businesses across the UK.

Joe Gilbert ACMA CGMANovember 9, 2026

Sources: GOV.UK, Budget 2026 overview of tax legislation and rates (paragraph 1.24); Mandatory reporting of benefits in kind in real time information from April 2027; HMRC draft guidance on reporting benefits in kind in real time (phased introduction, getting ready, how to report, Class 1A, penalties, collecting tax over the 50% limit); Employer Bulletin October 2026; Expenses and benefits for employers: deadlines; Finance Act 2023 section 11 (company car percentages). All checked 9 November 2026. The changes are subject to final legislation, and HMRC's guidance is still being finalised. This guide is general information, not advice for your circumstances.

Benefits in kind changes on GOV.UK HMRC guidance for employers Expenses and benefits deadlines