The government is changing the way employee benefits are taxed, and from April 2027, most benefits will be handled through payroll instead of separate year‑end forms.
This means things like private medical insurance, company cars, gym memberships, fuel benefit and other everyday perks will have their tax collected each month through PAYE rather than being sorted out after the tax year has ended. This aims to make the process quicker, clearer and more accurate for both employers and employees.
Only two types of benefits won’t have to go through payroll straight away in 2027 – accommodation provided by an employer and low‑interest or interest‑free loans. Everything else will move to the new system. If these two benefits aren’t paid, they will still need to be reported separately.
Because more benefits will be included in payroll, the current P11D forms used to report them will largely disappear. National Insurance on benefits will also move into the payroll process instead of being paid separately at the end of the year. This should reduce unexpected tax bills for employees and cut down on paperwork for businesses. HMRC has said there will be no penalties in the first year unless mistakes are deliberate, giving businesses time to adjust to the changes.
Trevor Day, Partner at Burgis & Bullock, comments: “This is a big shift, but in the long run it should make things easier for everyone. Employees will see the tax on their benefits in real time on their payslips, and employers will have fewer year‑end forms to worry about. The important thing is to make sure payroll systems and processes are ready before the changes arrive.
“Although the new rules start in 2027, it’s sensible for businesses to prepare early. Payroll software may need updating, benefit providers will need to supply accurate monthly information, and employers may need to adjust how they collect and record benefit details. It also helps to let employees know that their payslips may look different once the new rules begin.”
Overall, these changes are designed to make the tax system more straightforward and reduce the amount of admin for employers.
If you would like help understanding how the new rules might affect your business or want support getting ready for 2027, the Burgis & Bullock team is here to help. https://www.burgisbullock.com/contact-us/
Trevor Day, Partner at Burgis & Bullock.
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