Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
HMRC charges employer Class 1A National Insurance at 15% on the taxable value of benefits in kind for the 2026-27 tax year, and from 6 April 2027 it will require company cars, car fuel, vans, van fuel and private medical benefits to be reported through payroll in real time rather than on a P11D ([4]) ([5]). For employers, that means the relationship with HMRC over benefits is moving from an annual filing to a monthly submission.
Payrolling benefits with HMRC means using the payrolling employees taxable benefits and expenses process so that Income Tax on a benefit is collected through the payroll each pay period, and HMRC removes that benefit from the employee's tax code ([1]). The employer still settles the Class 1A National Insurance with HMRC after the year end through a P11D(b) ([3]).
This explainer walks through the HMRC side of the process: how the online service works, how HMRC adjusts tax codes, what has to reach HMRC through the Full Payment Submission, the Class 1A settlement, the penalties HMRC applies, and how the HMRC process changes from April 2027. It is aimed at employers and the finance teams and bureaux that deal with HMRC on their behalf.
Key takeaways
- HMRC operates payrolling through its payrolling employees taxable benefits and expenses online service, which an employer must use before the start of the tax year.
- Once an employer payrolls a benefit, HMRC removes it from the employee's tax code so the benefit is not taxed twice.
- Class 1A National Insurance, at 15% for the 2026-27 tax year, is reported and paid to HMRC through a P11D(b) even when benefits are payrolled.
- HMRC's automatic penalty for a late P11D(b) is £100 for every 50 employees, for each month the return is late.
- From 6 April 2027 HMRC makes payrolling the default for the main benefits and collects the tax and Class 1A through the Full Payment Submission.
How HMRC's payrolling service works
HMRC does not let an employer simply start adding benefits to payslips. The employer has to tell HMRC first, through the payrolling employees taxable benefits and expenses online service, and it has to do so before the tax year begins ([1]). Registration is completed through the employer's PAYE online account, and the employer specifies which categories of benefit it wants to payroll ([1]).
The timing is the part employers most often get wrong. Because HMRC needs to adjust tax codes before the year starts, registration for a tax year is not available once 6 April has passed for that year ([1]). An employer that misses the window has to wait a full year or fall back on the P11D route for that year ([2]). Registering early gives HMRC time to reflect the change cleanly in codes ([7]).
Choosing which benefits to include
Through the online service the employer selects the benefit types to payroll, and it can also exclude specific employees from payrolling if their circumstances make real-time reporting difficult ([1]). Under the current process two benefit types cannot be payrolled at all: employer-provided living accommodation and beneficial loans, both of which still go on a P11D ([2]). Everything else an employer commonly provides, from company cars to medical cover, can be included ([13]).
How HMRC adjusts the tax code
When an employer registers a benefit for payrolling, HMRC makes sure the value of that benefit is not also carried in the employee's tax code, so the employee is not taxed twice on the same perk ([1]). This matters because a tax code that still contains a benefit deduction, running alongside payrolled notional pay, would double the tax ([11]). Employers should check that codes have updated before the first payrun of the year, since a stale code is the most common cause of an employee complaint ([11]).
What HMRC collects each pay period
Once payrolling is live, the employer adds the benefit's taxable value to the employee's taxable pay each period, and the Income Tax on it flows through the normal Pay As You Earn calculation reported to HMRC on the Full Payment Submission ([1]). HMRC therefore receives the tax on the benefit in the same monthly rhythm as the tax on salary, which is the whole point of real-time collection ([6]).
The value added each period is the annual taxable value divided across the pay periods in the year ([1]). A benefit worth £2,400 for the year, payrolled monthly, adds £200 to taxable pay each month ([2]). The Full Payment Submission that carries salary and National Insurance already reaches HMRC on or before payday, so the benefit tax simply travels inside a submission the employer already sends ([6]).
Payroll software that carries the HMRC Recognised badge submits the Full Payment Submission automatically and reflects the current rates without manual reconfiguration, which is why most employers run benefits through a payroll platform for SMEs rather than by hand ([1]). The HMRC Recognised status is a baseline requirement for any software submitting Real Time Information at scale, not an optional extra ([6]).
Settling Class 1A National Insurance with HMRC
Payrolling deals with the employee's Income Tax, but it does not settle the employer's National Insurance on the benefit. Class 1A National Insurance is still reported to HMRC after the year end on a P11D(b), whether or not the underlying benefits were payrolled ([3]). This is the single most common misunderstanding about payrolling: it does not make the P11D(b) go away ([2]).
For the 2026-27 tax year, Class 1A is charged at 15% on the taxable value of the benefit ([4]). The employer totals the taxable value of all benefits, payrolled and non-payrolled, applies 15%, and reports the figure to HMRC on the P11D(b) ([3]). The table below shows the settlement figures for a small illustrative benefit set.
| Benefit | Taxable value | Class 1A at 15% |
|---|---|---|
| Company car | £6,000 | £900 |
| Private medical insurance | £1,200 | £180 |
| Company van | £3,960 | £594 |
| Total to HMRC on P11D(b) | £11,160 | £1,674 |
The table shows that even a modest benefits package generates a four-figure Class 1A bill that HMRC expects to be settled to the day ([3]). Employers weighing the cost of providing benefits can model the employer National Insurance side with the Moonworkers UK salary and employer cost calculator, which applies the 2026-27 rules ([4]).
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
The HMRC deadlines and penalties
HMRC runs benefits reporting on a fixed annual calendar, and it applies automatic penalties when the calendar is missed. The dates below apply to a tax year ending on 5 April ([2]).
| HMRC action | Deadline |
|---|---|
| P11D and P11D(b) filed with HMRC | 6 July after the tax year |
| Employee benefit information provided | 6 July |
| Class 1A paid to HMRC (electronic) | 22 July |
| Class 1A paid to HMRC (post) | 19 July |
| Tax and Class 1B paid under a PSA | 22 October |
HMRC issues an automatic penalty of £100 for every 50 employees, for each month or part month a P11D(b) is late ([3]). Late payment of Class 1A attracts interest plus escalating penalties on the unpaid amount ([4]). HMRC can also charge penalties for inaccurate returns where an error is careless or deliberate ([2]). Accountants managing benefits across many client schemes usually rely on a multi-client payroll dashboard so no P11D(b) slips past 6 July on any scheme ([3]).
Giving employees their information
HMRC requires the employer to give each employee a written statement of the benefits that were payrolled, by 6 July following the tax year ([1]). The statement lets the employee check the figures and complete a Self Assessment return if they file one ([2]). This obligation survives even though the P11D itself has gone for payrolled benefits, so employers should not assume payrolling removes all paperwork owed to staff ([1]).
Correcting a benefit with HMRC
Benefits change during the year, and HMRC expects the payroll to keep pace. If a company car is swapped or a medical policy is upgraded, the new taxable value has to reach the payroll in time for the next run so the notional pay reported to HMRC is right ([8]). Where a benefit ends mid-year, the employer stops adding the notional pay and the amount already taxed stands ([1]).
To correct a P11D or P11D(b) already sent to HMRC, the employer submits an amended form that includes all benefits, not only the ones that changed, and reports the full corrected Class 1A total rather than the difference ([2]). Getting the amendment format right avoids a second round of HMRC queries, which is why clean benefit records matter as much as the original submission ([3]).
How the HMRC process changes from April 2027
The HMRC relationship over the main benefits changes fundamentally from 6 April 2027. Payrolling becomes mandatory for company cars, car fuel, vans, van fuel and private medical benefits, and for those benefits the employer no longer registers, because payrolling is the default ([5]) ([7]). HMRC will automatically remove those benefits from employees' tax codes ready for the start of the new system ([7]).
The bigger change is that both Income Tax and Class 1A National Insurance on the mandatory benefits will be reported through the Full Payment Submission and paid in real time, rather than the Class 1A waiting for the annual P11D(b) ([6]). Employers that want to payroll non-mandatory benefits, including loans and accommodation, will register through a service HMRC reopens in November 2026, with a 5 April 2027 deadline ([7]).
HMRC has said it will not charge inaccuracy penalties for mandatory payrolling errors in the 2027 to 2028 Real Time Information returns unless there is evidence of deliberate non-compliance, though late filing and late payment penalties and statutory interest can still apply ([7]). Platforms that embed payroll through an HMRC-recognised payroll API will carry the new Full Payment Submission fields, so the HMRC-facing change is absorbed in software rather than in manual process ([6]).
How HMRC values the common benefits
The figure the employer reports to HMRC is the taxable value of the benefit, and HMRC sets out how each type is valued ([2]). Getting this figure right is what determines whether the tax collected each period and the Class 1A settled at year end are correct, so it is worth understanding how the main categories are measured ([3]).
The company car is valued as the list price of the vehicle multiplied by an appropriate percentage set by its carbon dioxide emissions, not by what the employer pays to lease it ([9]). A capital contribution by the employee of up to £5,000 reduces the list price before the percentage is applied, and private fuel is a separate benefit with its own charge ([10]). Private medical insurance is valued at the cost to the employer of that individual's cover ([2]). The table below summarises how HMRC treats several everyday benefits.
| Benefit | How HMRC values it | Reportable to HMRC |
|---|---|---|
| Company car | List price times emissions percentage | Yes, payrolled or P11D |
| Car or van fuel (private) | Set fuel benefit charge | Yes, payrolled or P11D |
| Private medical insurance | Cost to employer of the cover | Yes, payrolled or P11D |
| Work phone, business use only | No taxable value | Exempt |
| Business travel at benchmark rates | No taxable value | Exempt |
The pattern the table reveals is that the exemptions carry no HMRC report at all, while the taxable benefits are reported one way or the other ([13]). An occasional employer producing a single payslip a month can meet its HMRC obligations with an instant HMRC-compliant payslip and add benefit reporting as the team grows, while larger employers usually need the payroll software for SMEs to carry the calculation and the submission together ([1]). The mechanics of employer National Insurance underpin the Class 1A figure, and readers new to it can follow the reasoning in the guide to understanding employer National Insurance ([4]).
Conclusion
For an employer, the HMRC side of payrolling comes down to three obligations that must be kept apart: use the online service to start payrolling before the year begins, report the benefit tax through the Full Payment Submission each period, and settle Class 1A on the P11D(b) after year end. Payrolling changes the timing of the Income Tax, but it leaves the employer National Insurance obligation and the year-end return in place.
The direction HMRC has set removes the choice for the largest benefits from April 2027 and folds their tax and National Insurance into the same real-time submission that already carries salary. Employers that understand which HMRC obligation each step satisfies, and let recognised software carry the submissions, will find the transition a change of rhythm rather than a change of principle.
Frequently asked questions
How does an employer register with HMRC to payroll benefits?
The employer uses HMRC's payrolling employees taxable benefits and expenses online service, accessed through its PAYE online account, and selects the benefit types to payroll before the tax year starts ([1]). Registration for a tax year cannot be completed once 6 April has passed for that year, so the timing is strict ([2]). From April 2027 no registration is needed for the mandatory benefits ([7]).
Does HMRC still want a P11D(b) if benefits are payrolled?
Yes. HMRC still requires a P11D(b) to report and pay Class 1A National Insurance on all benefits, payrolled or not, by 6 July after the tax year ([3]). Payrolling removes the per-employee P11D for the payrolled items, but never the P11D(b) ([2]).
Will HMRC change my employees' tax codes when I payroll a benefit?
Yes. When an employer payrolls a benefit, HMRC ensures the value is not also carried in the employee's tax code, so the benefit is not taxed twice ([1]). From April 2027, HMRC will automatically remove the mandatory benefits from tax codes ahead of the new system ([7]).
What penalty does HMRC charge for a late P11D(b)?
HMRC applies an automatic penalty of £100 for every 50 employees, for each month or part month the P11D(b) is late ([3]). Late payment of the Class 1A National Insurance adds interest and further penalties on the unpaid amount ([4]).
