From April 2027, HMRC intends to make payrolling of benefits in kind mandatory for most benefits, including private medical insurance. Instead of annual P11D forms and tax code adjustments, the taxable value will be reported through payroll in real time each pay period. The tax owed doesn't change — when and how it's collected does.
- ✓Mandatory payrolling of most benefits in kind starts April 2027 (delayed from April 2026).
- ✓Medical insurance BIK moves from P11D and tax codes to real-time payslip deductions.
- ✓The amount of tax stays the same — only the timing and mechanism change.
What's changing, in plain English
Today, most employers report benefits in kind — including company-paid health insurance — on P11D forms after the tax year ends. HMRC then adjusts each employee's tax code so the tax trickles out of future pay, often a year or more after the benefit was enjoyed. It's slow, error-prone, and a common cause of surprise tax bills.
From April 2027, HMRC plans to mandate payrolling: the taxable value of most benefits is added to pay in each period and taxed in real time through PAYE, appearing on the payslip like salary. The change was originally slated for April 2026 and pushed back a year to give employers and software providers time to prepare. This page reflects the current HMRC direction of travel — details are still being finalised, so confirm specifics with your accountant or payroll provider before acting.
Who's affected — and which benefits are in scope
Essentially every employer that provides taxable benefits is affected, from a two-person company scheme to a national workforce — there is no small-employer exemption in the current proposals, though HMRC has signalled a pragmatic approach to penalties in the first year while everyone adjusts. Under current proposals, mandatory payrolling covers most benefits in kind — including private medical insurance, gym memberships and company cars — with employment-related loans and accommodation expected to be payrolled on a voluntary basis at first, given their valuation complexity.
If you provide company health cover, this lands squarely on you: medical insurance is one of the most common P11D entries. The BIK rules themselves — what's taxable and how it's valued — are covered in our tax deductibility guide.
For medical insurance specifically, the mechanics are simple compared with cars or loans: the taxable value is normally just the premium the employer pays for that employee, so payrolling means dividing the annual premium across pay periods and adjusting when the scheme renews or membership changes. If your scheme renews mid-tax-year — most do — expect one recalculation per year per employee as the new premium lands.
Timeline: now, 2026–27, and April 2027
| Period | What applies | What employers should do |
|---|---|---|
| Now (2026) | P11D reporting is the default; voluntary payrolling available if registered with HMRC before the tax year starts | Review benefits provided; talk to your payroll software provider; consider registering voluntarily |
| 2026–27 tax year | Last full year of P11D-by-default; final P11Ds due 6 July 2027 | Dry-run payrolling calculations; clean up benefits data; brief employees |
| From April 2027 | Mandatory payrolling of most BIKs in real time via Full Payment Submission | Report benefit values each pay period; handle in-year changes (joiners, leavers, premium changes) |
Reviewing your company health cover?
Should you register to payroll voluntarily now?
You can already payroll most benefits voluntarily by registering with HMRC's online service before the start of the tax year you want it to apply from. Weighing it up:
- For. You iron out the process while it's optional, employees adjust gradually, and you drop most P11D filing a year early.
- For. Employees pay tax on the benefit as they go — no lagging tax code adjustments or catch-up bills later.
- Against. In the first year of payrolling, some employees can feel a doubling-up effect if their tax code is still collecting last year's P11D benefit while the current year is payrolled — communicate this clearly.
- Against. If your benefits data is messy (mid-year joiners, premium changes), payrolling exposes it monthly rather than annually. Fix the data first.
What employees will notice
Under P11D reporting, most employees never see the benefit itself — just a mysteriously reduced tax code. Under payrolling, the benefit appears as a notional amount on the payslip: it's added to taxable pay, taxed, then removed, so take-home pay falls slightly but visibly. For a £600 annual premium, a basic-rate taxpayer sees roughly £10 a month more tax; a higher-rate taxpayer about £20.
Expect questions the first month it appears. A short note explaining "same tax, different timing — and your tax code should get simpler" prevents most of them. The upside for employees is real: tax codes stop carrying mysterious benefit adjustments a year in arrears, and leavers no longer get chased for underpaid tax on a benefit from a previous employer. For most people, payrolling is the more transparent system once the first payslip shock passes.
Employer action checklist
- Inventory your benefits. List everything you provide — medical insurance, cash plans, gym, cars — with annual values per employee.
- Ask your payroll software provider when their mandatory-payrolling functionality ships and what data format it needs.
- Clean your data. Match insurer membership lists to payroll records; resolve leavers, joiners and family-cover additions.
- Decide on voluntary registration for the 2026–27 year, with your accountant's input.
- Plan employee communications for the first payrolled payslip.
- Diarise the last P11D cycle — final forms for 2026–27 are still due by 6 July 2027, and Class 1A NIC obligations continue.
Frequently asked questions
Does the P11D disappear completely in April 2027?
Mostly, but not entirely. Routine benefit reporting moves into payroll, ending the annual P11D for most employers. However, HMRC has indicated an end-of-year process will remain for employer Class 1A National Insurance — currently the P11D(b) — and some benefits (like loans and accommodation) may stay outside mandatory payrolling initially. Final guidance will confirm the detail.
Can I payroll benefits voluntarily before 2027?
Yes. Register with HMRC's payrolling benefits online service before the start of the tax year you want to begin — registration can't normally be applied mid-year. Many employers are using 2026–27 as a practice year so that mandatory payrolling in April 2027 is a non-event rather than a scramble.
What does my payroll software need to handle?
It must include benefit values in each Full Payment Submission, spread annual values across pay periods, and cope with in-year changes — joiners, leavers, premium increases and family-cover additions. Most major providers are building this for April 2027; ask yours for their roadmap now, and how they'll handle corrections.
Will employees pay more tax under payrolling?
No. The taxable value of the benefit and the tax rates applied are unchanged — payrolling only changes when and how the tax is collected. Instead of a delayed tax code adjustment, employees pay in real time each pay period. Take-home pay dips slightly sooner, but the annual total is the same.
What happens to tax codes that currently include medical benefit?
Once a benefit is payrolled, HMRC should remove it from the employee's tax code, since the tax is being collected at source. In the transition year, watch for overlap: a code still collecting last year's P11D benefit alongside current-year payrolling can briefly overtax employees. Flag discrepancies to HMRC promptly.
Does mandatory payrolling change employer Class 1A NIC?
The 15% charge itself doesn't change under current proposals — employers still owe Class 1A on benefit values. What's expected to change is the reporting route, with HMRC consulting on collecting it in-year through payroll rather than via the annual P11D(b). Budget the same amount; watch for new payment timing.
How should we handle a premium change partway through the year?
Payrolling uses the expected annual value spread across remaining pay periods, so when your insurer's renewal lands mid-year you recalculate and adjust the per-period amount going forward. Small end-of-year true-ups are expected and permitted. Keep the insurer's premium schedule and your payroll records reconciled to make this painless.
We're a two-person company scheme — does this really apply to us?
Yes. Mandatory payrolling applies to employers of any size that provide taxable benefits, and even a director-only company paying for private medical cover through the business is in scope. Small employers running payroll through an accountant should simply confirm the accountant will handle benefit reporting from April 2027.
Is it worth dropping company health cover to avoid the admin?
For most employers, no. Payrolling is a one-off setup change, while health cover remains the most-valued voluntary benefit at a typical £35–£110 per employee per month — a strong retention tool in a market where only around 31.5% of employers offer it. If admin is the worry, modern payroll software absorbs almost all of it.
Where can I check the official rules as they're confirmed?
HMRC publishes updates on gov.uk — search for "payrolling employees' taxable benefits and expenses" and the employer bulletins, which carry each policy announcement. Because technical details were still being finalised as of mid-2026, treat any secondary source (this page included) as a starting point and confirm with your accountant.