From April 2027, mandatory payrolling replaces P11D reporting for most benefits in kind, including private health insurance. Employees will pay tax on benefits in real time through their tax code and payslip rather than in arrears. Employers should audit their benefits, update payroll software and brief staff during 2026–27.
- ✓Mandatory payrolling of most benefits in kind starts April 2027.
- ✓Employees pay BIK tax in real time via payslip, not in arrears via tax code.
- ✓Employers should audit benefits and payroll software during 2026–27.
What's actually changing
Today, most employers report benefits in kind — private health insurance chief among them — on annual P11D forms after the tax year ends. HMRC then adjusts each employee's tax code, so people pay tax on their benefit in arrears, often a year or more after receiving it. Voluntary payrolling has existed for years, but most employers stayed on P11Ds.
From April 2027, that flips: payrolling becomes mandatory for most benefits in kind. The taxable value of a benefit is divided across the year and added to taxable pay each period, so tax is collected in real time through the payslip. P11Ds disappear for payrolled benefits; Class 1A National Insurance (currently 15%) will also be reported and paid through payroll processes rather than the annual P11D(b). The change was originally slated for April 2026 and pushed back a year to give employers and software providers time.
Who's affected — and how it feels to employees
Any employer providing taxable benefits is in scope — which includes every business offering health insurance, from a two-person scheme upwards. Employees will see the change on their payslips: the benefit's value appears each period and the tax comes out as they go.
For most people the annual tax bill is unchanged — it's a timing change, not a tax rise. But the transition year needs care: employees whose tax codes still contain an old benefit adjustment could briefly be taxed twice unless codes are cleaned up, and anyone used to 'invisible' benefits will suddenly see a line on their payslip. Expect questions — especially 'why has my take-home dropped?' from staff who didn't realise their health cover was taxable at all.
Sorting your scheme before 2027?
The act-now checklist for 2026–27
None of this is difficult if you start early. Between now and April 2027:
- Audit your benefits. List every benefit in kind you provide — health insurance, cash plans, company cars, anything on last year's P11Ds — with taxable values.
- Check your payroll software. Confirm your provider's timeline for mandatory payrolling support, and how mid-year joiners, leavers and premium changes will be handled.
- Consider registering to payroll voluntarily for 2026–27. A dry run on the current voluntary basis irons out problems while P11Ds are still a fallback.
- Plan the employee comms. A short note before the first affected payslip prevents a flood of questions — explain that it's a timing change, not a new tax.
- Brief whoever does your P11Ds. Accountants and bureaux are re-tooling too; agree who owns the transition.
- Reconcile tax codes at switch-over. Make sure benefit adjustments are removed from codes once payrolling begins.
What it means for health insurance decisions
The underlying tax treatment of business health insurance doesn't change: premiums generally remain deductible for corporation tax, Class 1A NIC at 15% still applies, and cover remains a benefit in kind for employees. Group cover still typically runs £35–£110 per employee per month (average around £57), usually 10–30% cheaper per head than individual policies. If anything, real-time payslip visibility is a reason to communicate the benefit's value better — an employee seeing the taxable line should also know what the cover is worth.
For the full mechanics, see our guides to the 2027 payrolling change, registering to payroll early and P11D deadlines for the remaining years.
Frequently asked questions
What happens to P11Ds when payrolling becomes mandatory in April 2027?
P11Ds disappear for payrolled benefits — the taxable value is reported through payroll in real time instead, and employees pay the tax via their payslip rather than a tax-code adjustment in arrears. Class 1A NIC reporting also moves into payroll processes, replacing the annual P11D(b) for those benefits.
Does the April 2027 payrolling change increase the tax on health insurance?
No — it's a timing change, not a tax rise. Employees pay the same tax on their health insurance benefit, but in real time through the year instead of in arrears via their tax code. Employer costs are also unchanged: Class 1A NIC at 15% still applies and premiums generally remain corporation-tax deductible.
What should employers do before mandatory payrolling starts in 2027?
Audit every benefit in kind you provide, confirm your payroll software's readiness, consider a voluntary payrolling dry run in 2026–27, plan a short employee communication before the first affected payslip, agree ownership with your accountant or bureau, and reconcile tax codes at switch-over so nobody is taxed twice.
Will employees pay double tax when benefit payrolling starts in April 2027?
They shouldn't — but the transition needs care. If an employee's tax code still contains an old P11D-era benefit adjustment after real-time payrolling begins, they'd temporarily overpay until the code is corrected. Encourage staff to check their 2027–28 tax codes when the change lands.
Can employers start payrolling benefits before the 2027 deadline?
Yes — voluntary payrolling has existed for years, and registering with HMRC before the start of a tax year lets you run 2026–27 as a dry run while P11Ds remain a fallback. Many advisers recommend it as the lowest-risk route into the mandatory regime.