If you have just completed and filed form P11Ds, you will know this is an annual process that has been in place for more than 60 years. It is the form used to report taxable benefits and expenses provided to employees and directors that have not already been taxed through payroll. But now we will see the end of the P11d era, so here’s the latest update.
Until recently, the expectation was that P11Ds would effectively be scrapped from April 2027 as part of HMRC’s move to mandatory real-time payrolling of benefits in kind. As such, we have been preparing our clients for this transition. However, following feedback from employers, agents, software providers and professional bodies, HMRC has now confirmed a phased implementation.
The P11D is still on the way out, but the transition will happen over several tax years rather than in one single step.
A short history of the P11D
The P11D was introduced in the early 1960s, when employment packages were far simpler, and the salary threshold for the rules was just £200. Its purpose was straightforward: to give HMRC a way to identify and tax non-cash benefits provided by employers outside normal salary.
Over the decades, the form became a familiar part of the tax year-end cycle. Employers gathered information after 5 April, calculated the taxable value of benefits, filed P11Ds by 6 July, gave employees copies, and paid Class 1A National Insurance separately.
The process has worked, but it is retrospective, administrative and often confusing for employees whose tax codes were adjusted months after they had received the benefit.
There have been significant changes along the way. Company car taxation moved to a system based on list price and carbon dioxide emissions in 2002; optional remuneration arrangement rules were introduced in 2017; and, from April 2016, employers were able to voluntarily payroll most benefits in kind. This voluntary payrolling option marked the beginning of the end for the traditional P11D model.
Why HMRC wants to move away from P11Ds
The main policy aim is to move the taxation of benefits from an annual, after-the-event reporting process to a real-time payroll process. Instead of waiting until after the end of the tax year, employers will report the taxable value of benefits through payroll, usually via the Full Payment Submission. Employees will then pay the tax through PAYE during the year in which they receive the benefit.
To be honest, as mentioned in last week’s blog, HMRC’s direction of travel is toward more regular tax collection.
For employees, the change should make tax deductions timelier and more transparent, with benefits reflected in payroll rather than later through estimated tax code adjustments. Tax code adjustments remain one of the most confusing aspects of understanding your tax position if you are employed.
What has changed?
The original plan was for mandatory payrolling of most benefits in kind to begin from April 2027. That has now changed. HMRC has confirmed that mandatory real-time reporting will be phased in from 6 April 2027, giving employers, payroll teams and software providers more time to prepare.
The revised timetable is expected to work as follows:
- From 6 April 2027: mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits, including private medical insurance.
- From April 2028: mandatory payrolling is expected to extend to most other benefits in kind.
- At a later date: employment-related loans and employer-provided living accommodation are expected to be brought into the regime, but the government has not yet confirmed the timing.
This means the P11D will not disappear completely in April 2027. Instead, it will gradually become less relevant as more benefits move into payroll. During the transition, employers may still need to use P11Ds for benefits that are not yet subject to mandatory payrolling or are not voluntarily payrolled.
What employers should do now?
The additional time is welcome, but it should not be treated as a reason to delay.
Payrolling benefits require timely and accurate data each pay period, rather than a year-end collection exercise. Employers should use the period before April 2027 to review their benefits, payroll software, internal processes and employee communications.
- Identify which benefits are currently reported on P11Ds and which will fall into the first mandatory phase from April 2027.
- Check that payroll software can process benefit values correctly and report the required data in real time.
- Review how benefit information is received from providers, particularly for medical insurance, company cars and fuel.
- Plan employee communications so staff understand why taxable pay, tax codes or take-home pay may change.
- Consider whether voluntary payrolling of additional benefits during the transition would make administration easier.
Could PSAs be next?
There is also a current call for evidence on PAYE Settlement Agreements (PSAs), which explores how these arrangements work in practice for employers and whether the rules are clear, consistent and fair.
A PSA is a voluntary arrangement with HMRC that allows an employer to pay the income tax and National Insurance due on certain minor, irregular or impracticable expenses and benefits on behalf of employees. Typical examples might include staff entertaining, small gifts, non-exempt events or shared costs that are difficult to allocate accurately to individuals.
Although the consultation does not itself introduce new tax or immediate changes, it is another sign that employment tax reporting is moving towards timelier, payroll-led reporting.
It would not be surprising to see PSA reporting eventually follow a similar trend, with more information captured through monthly payroll processes rather than only after the tax year has ended.
If you would like to know more or participate in the consultation you can find more details here.
Final Thoughts
The key message is that the P11D is being phased out, not abolished overnight.
From April 2027, the most common benefits will move to mandatory payrolling, with most others expected to follow from April 2028, and loans and accommodation to come later.
Employers who prepare early will be best placed to manage the change smoothly, avoid payroll surprises and support employees through the transition.
At Myers Clark, we are strongly positioned to help clients navigate these changes, from reviewing current benefits and preparing for monthly reporting to taking over payroll processing where additional support is needed. If you need help, get in touch. Here’s who we help.
If we are preparing your P11d’s, your manager will be in touch with you over the coming months. However, if you want to start planning early or have some questions, please email your normal manager in the first instance.