P11Ds versus Payrolling of Benefits in Kind: Are We Ready?

From paper P11Ds to real-time reporting, Fiona Broad MCIPPdip who works as a Payroll Manager for PayCaptain, reflects on almost three decades of benefits administration and considers what mandatory payrolling will really mean for payroll departments, bureaus, employers and employees. 

From paper P11Ds to real-time payroll 

I have worked in payroll since 1997, so I have seen quite a few changes in the way benefits in kind are reported and taxed. 

I remember the paper P11D, working through categories A to M and deciding where each benefit belonged. Was it taxable? Was it reportable? Which box did it belong in? 

Then came the annual exercise of preparing and checking the forms, submitting them to HMRC and providing copies to employees and leavers. 

For payroll departments it could be an incredibly onerous exercise. For payroll bureaus there was another side to it: P11Ds could also be a lucrative annual service, often charged per form. 

Over the years the benefits landscape changed around us. Dispensations disappeared, PAYE Settlement Agreements became increasingly relevant and the range of benefits offered by employers grew. Wellbeing and flexible benefits have added another dimension, but someone still needs to ask the same fundamental questions: is it taxable, is it exempt and how should it be reported? 

Throughout all those changes, the P11D remained. 

Now, nearly 30 years after I first encountered one, the traditional P11D model is undergoing perhaps its biggest change yet. 

From annual reporting to real-time payroll 

Payrolling benefits isn’t actually new to me. I was doing it in the early 2000s on a payroll where we processed 20 different benefits. 

We treated the benefit as a notional payment so that the appropriate tax could be collected through payroll. The employee could see the payrolled benefit on their payslip and the value was included for tax purposes. 

It worked, but it also raised a question that I think is about to become very relevant again: How do we make sure employees understand what they are seeing on their payslip and why? 

From 6 April 2027, mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits. From 6 April 2028, it will extend to most remaining benefits in kind. 

Employment-related loans and accommodation remain outside mandatory payrolling for now, with their future mandatory treatment still to be confirmed. 

The phased approach gives payroll more time to prepare. But I’m not entirely convinced it necessarily makes the transition simpler. 

Could 2027/28 actually be the complicated year? 

For 2026/27, the existing P11D process continues. At the same time as employers complete that final annual exercise for most benefits for the year, they will already have started mandatory payrolling of the first group of benefits from April 2027. 

That creates some obvious challenges around workload, employee communication and Class 1A National Insurance. But there is another complication that I think will be particularly important for bureaus. 

From November 2026, employers will be able to register to voluntarily payroll benefits that are not yet mandatory from April 2027, with registration required by 5 April 2027 for the 2027/28 tax year. 

Consider an employer providing company cars and private medical insurance alongside several other taxable benefits. The cars and medical insurance must go through payroll from April 2027. If the employer doesn’t voluntarily payroll its other eligible benefits, those benefits may still need to be dealt with through the P11D process. 

The employer could therefore operate two different benefits processes for the same workforce: real-time payrolling for some benefits and annual P11D reporting for others. 

For a payroll bureau, it means knowing not only which customers provide benefits, but exactly which benefits each customer is payrolling and which remain within the P11D process. During 2027/28, the bureau may be processing and checking benefits through payroll every month while simultaneously retaining information for an annual P11D exercise after the tax year ends. 

In effect, the bureau could be doing the work twice for the same customer. That needs to be considered when reviewing both processes and pricing. 

It may therefore be worth bureaus discussing voluntary payrolling with customers this autumn. Where appropriate, bringing all eligible benefits into payroll from April 2027 could create a cleaner process rather than maintaining two systems for one year. That won’t necessarily be right for every employer, but it should at least be a conscious decision. 

Employer cashflow considerations 

Under the new system, the Class 1A liability associated with payrolled benefits will be calculated and reported through RTI during the tax year. HMRC’s current guidance also retains the end-of-year P11D(b) process for employers to confirm their Class 1A liability. (GOV.UK) 

That means employers need to understand the financial impact of their benefits packages well before the first payroll of April 2027.  For an employer with a significant number of company cars or private medical benefits, this could represent a substantial employer National Insurance cost. 

The employer 2027/28 budget forecast should therefore take account of the Class 1A cost associated with payrolled benefits, rather than if moving the benefit into payroll removes the employer’s liability. 

There is also a cash-flow consideration during the transition because employers will be dealing with the Class 1A liability relating to the 2026/27 P11Ds, while simultaneously moving into the new real-time payrolling regime for 2027/28. 

This is something that I think could easily be overlooked when employer budgets are prepared. 

Don’t forget the employee 

There is also the employee experience. Someone could have their company car or medical insurance taxed through payroll each month while another taxable benefit continues to be dealt with through the P11D process. 

Add previous-year tax-code adjustments into the equation and it isn’t difficult to see why employees could become confused. An employee may also see a notional benefit amount on their payslip and wonder why their taxable amount has increased when they haven’t actually received any additional cash. 

For payroll professionals, this makes sense. For an employee seeing it for the first time, it may not. An example payslip and clear communication before April 2027 could prevent a significant number of queries. 

This is also where the role of the payroll specialist becomes increasingly important. P11D knowledge has traditionally been something many payroll professionals called upon particularly heavily once a year. Now that knowledge is moving into the normal payroll cycle. 

Payroll specialists aren’t tax advisers, but they do need sufficient knowledge to identify the correct treatment, ask the right questions, challenge information that doesn’t look right and recognise when specialist tax advice is needed. Benefits knowledge can no longer sit with one person in the team who simply ‘does the P11Ds’. 

What about Universal Credit? 

Another consideration is the potential interaction with Universal Credit. Payrolling a benefit means a notional value is reported through payroll for PAYE purposes, but this does not automatically mean that the benefit becomes earnings for Universal Credit purposes, which has its own rules. 

Employees receiving Universal Credit may understandably see a higher taxable amount on their payslip and worry that this will also increase the earnings used to calculate their Universal Credit award. Payroll teams will therefore need clear guidance on how the new PBIK information reported through RTI will interact with DWP systems. 

This is another area where good employee communication will be important. Payroll professionals may need to explain the distinction between cash earnings, taxable benefits and earnings used for Universal Credit, rather than employees assuming they are all the same things. 

The P60 — and the annual benefits statement 

There is another misconception worth addressing.  The detailed benefit information will not simply move onto the employee’s P60. 

HMRC’s current guidance says employers will instead need to provide employees with a separate statement detailing relevant benefits received during the tax year, including which benefits were payrolled and their value, by 1 June following the end of the tax year. There is no prescribed format for this statement. (https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll )  

This is particularly important for employees completing self-assessment. 

The information they previously received through their P11D will still need to be available to them, even though the reporting mechanism has changed. 

For payroll bureaus, this raises another question: 

Will producing an annual benefits statement become a new service opportunity? 

The biggest challenge isn’t the software 

Cars illustrate the problem particularly well. Employees change vehicles. Cars arrive late. Fuel arrangements change. Employees join and leave. Salary sacrifice can add another layer. 

Historically, some of that information might have been collated as part of an annual exercise. From April 2027, payroll needs it in time to process the benefit correctly. The same principle applies to medical insurance and, ultimately, other benefits. 

Who tells payroll when someone joins the scheme? Who confirms when they leave? Who supplies the taxable value? Who owns the data? For a bureau, these questions need to be answered customer by customer. 

Software will undoubtedly evolve. HMRC will provide the reporting requirements and payroll systems will calculate the figures. 

But, in my opinion, the biggest challenge isn’t the software. It’s the information coming into the software. 

A payroll system can only process what it is given. If payroll isn’t told about a benefit, it can’t report it. If a car change is reported late, an employee is missed or a benefit is stopped incorrectly, real-time reporting simply means inaccurate information is reported more quickly. 

The annual reconciliation therefore doesn’t really disappear. It becomes monthly discipline rather than annual discipline. 

What happens to the bureau P11D service? 

There is also a commercial question for payroll bureaus. 

Historically, P11Ds could represent a profitable annual service. Mandatory payrolling changes that model. 

Should bureaus charge per employee, per benefit or per month? Should there be an implementation fee for set-up work, which can be considerable? Does benefit administration become part of the standard payroll service? 

And what about the customer operating the dual system in 2027/28? The bureau could be providing monthly PBIK processing and an annual P11D service. 

The work hasn’t disappeared. It has moved. 

Perhaps the opportunity is therefore to stop thinking about a P11D service and start thinking about a benefit payroll service. 

Benefit setup, monthly processing, reconciliations, employee communications, support with starters and leavers and year-end information all represent work. 

For bureaus, the next few months are therefore about more than compliance. They are also about defining what this new service looks like and what it should cost. 

Are we ready? 

Looking back, it is quite a journey. 

I remember manually working through P11D categories, the paper forms, employee copies and the annual rush. I also remember payrolling benefits as notional payments more than 20 years ago. 

Now benefits are moving firmly into RTI, which comes with its own challenges. 

For employees, this should ultimately provide greater transparency. For employers, it should reduce some of the annual administrative burden. 

But for payroll, the work isn’t disappearing. 

It is moving from annual processing to monthly processing, from forms to data, from retrospective checking to real-time accuracy and from producing a P11D to explaining a payslip. 

And for some employers and bureaus, 2027/28 may involve doing both. 

Forewarned is forearmed. 

PBIK readiness checklist: Autumn 2026 to April 2027 

Know your benefits 

• Employers and bureaus need to identify all benefit currently provided and which employees receive them. 

• Separate benefits becoming mandatory from April 2027, from those that are not mandatory. 

• Identify customers already voluntarily payrolling benefits. 

• Check benefits are correctly set up ready for the change in FPS reporting. 

 Decide your 2027/28 approach 

• From November 2026, Bureaus should discuss with customers whether to register eligible additional benefits for voluntary payrolling. 

• Complete any required voluntary registration by 5 April 2027 (ensure customers are aware of this deadline and remind them in February 2027). 

• Identify customers that will payroll all eligible benefits. 

• Clearly flag those operating both PBIK and P11D processes in 2027. 

 Get the data right 

• Establish who owns benefit information: HR, finance, fleet, benefits provider or customer. 

• Agree deadlines for notifying payroll of starters, leavers and benefit changes. 

• Reconcile employee and benefit data per pay period. 

• Review company car, fuel and medical benefit processes. 

 Prepare payroll 

• Confirm software and RTI readiness and test benefit setup before the first April payroll. 

• Train payroll specialists on benefit treatment and let them know when specialist tax advice is required. 

• Establish a regular benefit review and reconciliation process. 

• Ensure payroll checklists are continually updated with benefit information and whether all benefits are payrolled or only part in 2027. 

 Prepare employers and employees 

• Explain what will change on payslips and consider providing an example annotated PBIK payslip. 

• Assist with wording for employee communications regarding the changes so these can go out in January 2027. 

• Explain where an employer will operate both payroll and P11D reporting. 

• Explain how the Class 1 A liability will change from annual to monthly reporting so employers can budget for this in early 2027. 

• Make responsibilities between employer, bureau, HR and other benefit providers clear. 

 Review the commercial impact 

• Review bureau pricing for monthly benefits administration and dual PBIK/P11D customers. 

• Review customer agreements, responsibilities, and consider if onboarding agreements need to alter from April 2027. 

• Consider whether the existing P11D service should evolve into a wider benefits payroll service. 

• Consider if the bureau should offer a chargeable benefit summary as part of a new offering. 

 And don’t forget 2026/27 

• Co-ordinate the existing pricing structure and plan for existing P11D/P11D(b) benefits. 

• Complete the existing P11D/P11D(b) year-end requirements by 6 July 2027. 

• Plan for the associated Class 1A NIC liability from April 2027 and the existing benefits for July 2027. 

• Make sure the old process isn’t forgotten while implementing the new one. 

Author 

Fiona Broad MCIPPdip 

Fiona has worked in payroll, finance and HR for almost three decades, across both in-house and payroll bureau environments. She has been a Full Member of the CIPP since 1998 and is a member of the Association of Bureau Managers (ABM). Fiona currently works at PayCaptain as a Payroll Manager.  She is passionate about the changing role of payroll, professional knowledge and ensuring technology supports – rather than replaces – the payroll expertise behind accurate pay.