HMRC limits April 2027 payrolling to vehicle and medical benefits

HMRC’s revised interim guidance limits the first phase of mandatory benefits-in-kind payrolling, from 6 April 2027, to company cars, car fuel, vans, van fuel and employer-provided medical benefitsGOV. Most other benefits are scheduled for phase 2 from 6 April 2028GOV; employment-related loans and accommodation remain voluntaryGOVGOV. The phased approach replaces the earlier plan to bring most benefits into mandatory payrolling in April 2027GOV.

Employers will not need to register for the mandatory benefitsGOV. Employers wishing to voluntarily payroll non-mandatory benefits, including employment-related loans and accommodation, will need to registerGOV. HMRC says the registration service will go live in November 2026GOV. The deadline to register for voluntary payrolling for the 2027 to 2028 tax year is 5 April 2027GOV. Payroll teams should identify which benefits they provide, agree timely information flows with benefit providers and check software readiness against the narrower first-phase scope.

For mandated benefits, taxable values will be reported on the Full Payment Submission (FPS) at each payroll dateGOV, allowing Income Tax and employer Class 1A National Insurance contributions to be reported in real time. Annex 1 now illustrates medical cover costing £600 annually: £50 is added to the employee’s taxable pay each monthGOV. The employer pays Class 1A National Insurance contributions at 15% in this example, amounting to £7.50 per monthGOV. Annex 1 states: “This is paid by the employer and is not deducted from the employee’s pay.”

Where an employee receives more than one benefit subject to Class 1A National Insurance contributions, the employer or payroll software can add together the taxable values for those benefits for that employee for the pay period and calculate the liability on the total amount. Employers are told to complete data items 350 and 351 for the pay-period and year-to-date Class 1A totalsGOV. Annex 3 now focuses on cars, vans, medical benefits and Class 1A fields; updated technical specifications are expected in autumn 2026GOV, with adjustment-field details still subject to confirmation.

New correction guidance says employers should update a future FPS within the same tax year when values change, using reasonable estimates until actual values are known. If correction in-year is impossible, they can revise the final FPS after year endGOV. Updates received after 19 April of the following tax year count as end-of-year correctionsGOV. The filing deadline remains unconfirmed, but HMRC expects it to fall before 19 July following year endGOV; it is not planning a carry-forward facility for prior-year errorsGOV.

Additional Class 1A contributions are payable by 22 July following year end, or 19 July for postal paymentsGOV. Employee tax differences go through the existing reconciliation, Simple Assessment or Self Assessment processesGOV. Employers that correct figures after year end and have already issued a P60 must issue a revised P60 or an alternativeGOV.

Employers should also budget for the transition overlap: July 2027 Class 1A payments for 2026–27 benefits alongside real-time contributions for benefits provided from April 2027GOV. HMRC’s first-year inaccuracy-penalty concession excludes deliberate non-complianceGOV; late-filing and late-payment penalties and interest can still applyGOV.

The basis is HMRC’s interim payrolling guidance and illustrative draft legislation in Annex 2, whose broader April 2027 scope differs from the revised phased guidanceGOV and awaits updated legislationGOV.