HMRC sets payrolling penalties, deadlines and 2028 expansion

From 6 April 2027 employers must report company cars and car fuel, company vans and van fuel, and employer-provided medical benefits through payroll in real timeGOV, collecting Income Tax and Class 1A National Insurance contributions each pay period instead of reporting them on P11D and P11D(b) after the year endsGOV. Medical benefits for this purpose cover benefits that insure, reimburse or meet the cost of medical or dental treatment, including private medical and dental insurance and cash or health plans that reimburse those costs; exempt health screening, exempt welfare counselling, workplace adjustments and non-medical wellbeing benefits such as gym memberships are outside the definition. Registration is not needed to payroll the mandatory benefits, but employers that want to payroll anything else voluntarily for 2027 to 2028 must register by 5 April 2027GOV, and globally mobile employee exceptions must also be sought by that date.

From 6 April 2028 the mandate widens: all other P11D benefits and taxable expenses must go through payroll, except employment-related loans and accommodationGOV. Separately taxable associated living costs where accommodation is provided become mandatory from the same 2028 date. Termination payments stay outside mandatory payrolling and keep their existing reporting, as do benefits covered by a PAYE Settlement Agreement. Draft secondary legislation on the mandated and excluded benefits, RTI fields, error correction and transitional provisions follows in December 2026GOV, under vires contained in the already-made Income Tax (PAYE) (Amendment No. 3) Regulations 2026.

For 2027 to 2028 HMRC will not charge penalties for inaccuracies in RTI returns relating to mandatory payrolling unless there is evidence of deliberate non-complianceGOV; existing late-filing and late-payment penalties still apply. From 2028 to 2029 full penalties and interest applyGOV. Employers that used a reasonable estimate because information was unavailable, found it wrong, corrected it during the year or by 19 April after year end, and paid on time face no penaltyGOV. Otherwise the penalty bands are 0% to 30% for careless errorsGOV, 20% to 70% for deliberate but not concealed errors disclosed unprompted, 35% to 70% if promptedGOV, 30% to 100% for deliberate and concealed errors disclosed unprompted, and 50% to 100% if promptedGOV. Additional Income Tax must be paid by 19 April, or 22 April if paid electronicallyGOV, and additional Class 1A contributions by 22 JulyGOV, with late-payment interest running from the day after each deadline.

Corrections follow the existing RTI process: update year-to-date figures in the next regular Full Payment Submission, or a further submission where the final pay period has passed. Submissions made on or before 19 April after year end still correct the in-year position; later ones count as previous-year corrections. Where the full tax cannot be collected because the 50% overriding limit caps deductions in a pay period, or the employee has left or has no earnings, employers must still report the full benefit value and any uncollected tax is picked up after year end through P800, Simple Assessment or Self Assessment. Benefits continuing after employment ends, such as a retained company car, go on an FPS from April 2027.

Class 1A on payrolled benefits is calculated per employee per pay period, rounded once to the nearest penny. The P46 (Car) form disappears from 6 April 2027, and employers must give each employee who received payrolled benefits a written annual payrolled benefits statement by 1 June after year endGOV, notifying them in writing of any later adjustment.

Legal basis: the draft payrolling guidance and forthcoming secondary legislation described above, under vires in the Income Tax (PAYE) (Amendment No. 3) Regulations 2026; existing benefit valuation, making-good and exemption rules continue to apply.