From April 2027, the way employers report employee benefits will change significantly. The familiar P11D process will be replaced by mandatory payrolling of benefits, bringing tax on benefits into real-time payroll reporting. 

Although this administrative change won’t be mandatory until 2027, employers have the option to make the switch a year early – so long as they register for this with HMRC by 5th April 2026. Whether you make the change this year or next is completely up to you.  

So, the question stands: do you get ahead of the game and move to payrolling of benefits early, or wait until it becomes compulsory? 

This article will help you understand what’s changing, what it means for your people, and how to make the right choice for your business.

What’s Changing?

Currently, when you provide benefits such as a company car or private medical insurance, you report these to HMRC using P11D and P11Db forms after the tax year ends (by 6th July). 

Here’s how it works today: 

• Employees pay income tax on the value of the benefit 

• Employers pay class 1A National Insurance 

• Benefits are reported via P11D and P11Db form following the end of the tax year 

• HMRC adjusts the employees’ tax code to collect the tax due 

From April 2027, most benefits will need to be taxed through payroll in real time. This means: 

• The taxable value of benefits is processed through payroll each month 

• Employees pay tax as they go 

• The traditional P11D process most of us know will largely disappear 

As mentioned above, it’s important to note that you can choose to begin payrolling of benefits from the 2026 tax year (this April), if you would prefer. 

How Payrolling of Benefits Works

When employee benefits are processed through the payroll, the cash equivalent of the benefit is divided across the tax year and included in employees’ monthly taxable pay. 

Instead of a tax code adjustment months later, tax is collected immediately through Pay As You Earn (PAYE). This increases transparency, but it also requires accurate payroll systems and careful communication with employees who will be impacted.

The First-Year ‘Double Tax’ Effect

The year you decide to move to payrolling of benefits will largely depend on one key factor – which year you would rather your employees feel the transitional ‘Double Tax’ effect. 

What we mean by this is, during the first (and only the first!) year of processing employee benefits through payroll, employees will be taxed monthly on the current year’s benefit, while HMRC may also adjust tax codes relating to the previous year’s P11D submission. 

Essentially, this can result in employees paying tax relating to two different tax years, in one year. The reality is that this double-tax hit will have to happen at some point – but it’s down to employers to make the decision on whether this will impact their teams this year, or next. 

Should You Move to Payrolling of Benefits Early?

With mandatory implementation coming in April 2027, many employers are considering whether to transition in the 2026 tax year. Let’s break down the benefits of each option.

Pros of payrolling benefits in 2026

✅ Adopting early enables a smoother transition on your own terms, rather than facing mandatory deadline pressure.

✅ Benefit from real-time accuracy sooner, with tax being collected immediately rather than after-the-fact.

✅ Moving away from P11Ds earlier simplifies your year-end reporting tasks.

✅ Improve employee financial transparency by enabling them to view tax impact on benefits in their payslip.

Pros of waiting until 2027

✅ You can refine systems and processes at a measured pace, with more preparation time.

✅ The ‘double tax’ impact is deferred for another year.

✅ You may have the opportunity to observe early adopters and learn how other businesses manage the switch.

What Employers Should Be Doing Now

Whether you decide to make the move early or wait, preparation is key to a successful transition – whenever that may be. 

As leaders across all aspects of people management, we recommend these next steps:

1. Review all benefits currently reported via P11D forms in your organisation
2. Assess your existing payroll software capability
3. Model the financial and employee impact of both options
4. Plan employee communications to ensure clarity
5. Consider partnering with an outsourced payroll partner to manage the switch from P11D to payrolling of benefits on your behalf

How Omny Group Can Help

At Omny, we believe that compliance should empower your business – not disrupt it. When you partner with Omny HR for outsourced payroll services, our specialists work alongside you to audit your current benefits reporting, manage HMRC registration, deliver clear employee communications, and implement seamless payroll processing.

If you’re considering early adoption of payrolling benefits or simply want to understand your options, our payroll experts are here to guide you every step of the way. Speak to us today.