Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
The total taxable value of Class 1A benefits in kind reported to HMRC reached £9.5 billion in the 2024 to 2025 tax year, and around 920,000 people received a company car alone [1]. Every one of those benefits has to be taxed, and the way UK employers do that is changing. From 6 April 2027, taxing benefits through the payroll stops being a choice for the most common benefits and becomes a legal requirement [2].
Payrolling means the employer works out the taxable value of a benefit, adds it to the employee's taxable pay each pay period, and lets Pay As You Earn collect the income tax in real time. It replaces the older routine of reporting each benefit on a P11D form after the tax year has closed. Any employer that provides company cars, private medical cover, gym memberships or similar perks has a direct interest in getting this right, from a one-person company to a large scheme running payroll for SMEs across dozens of employees.
This guide sets out what payrolling benefits in kind actually involves, how it differs from the P11D route, the National Insurance that still has to be paid, the phased move to mandatory payrolling, and the practical steps an employer should take before the rules bite.
Key takeaways
- Payrolling means taxing a benefit through payroll in real time, rather than reporting it on a P11D after the tax year ends [3].
- Employer Class 1A National Insurance at 15% is still due on payrolled benefits, and a P11D(b) is still filed each year [4].
- From 6 April 2027, payrolling becomes mandatory for company cars, car fuel, vans, van fuel and employer-provided medical benefits [2].
- Most remaining benefits follow from 6 April 2028, with loans and living accommodation staying voluntary [2].
- To payroll benefits before the mandatory start date, an employer must register with HMRC before the tax year begins [3].
What payrolling benefits in kind means
Payrolling is the process of collecting the income tax due on a benefit through the payroll, spread across the pay periods in the tax year, instead of coding it out or reporting it later [3]. The employer calculates the cash equivalent of each benefit, divides it by the number of pay periods, and adds that amount to the employee's taxable pay each time they are paid [5].
Crucially, the benefit value is added to taxable pay but not to the pay the employee actually receives. The extra taxable amount raises the income tax deducted, so the tax is paid evenly across the year rather than clawed back afterwards [5]. HMRC has offered voluntary payrolling since April 2016, and take-up has grown steadily to the point where the completeness of HMRC's own benefit statistics has been affected [1].
How the calculation works in practice
The starting point is the cash equivalent of the benefit, the figure that HMRC rules assign as its taxable value [6]. For a company car, that value comes from the list price multiplied by an appropriate percentage set by the car's carbon dioxide emissions, so a low-emission vehicle produces a much smaller charge than a high-emission one [7]. The average taxable value of a company car fell to £3,330 in 2024 to 2025, largely because fully electric cars now make up 51% of company cars and attract far lower percentages [1].
Once the annual cash equivalent is known, the employer divides it across the pay periods. A benefit worth £3,600 a year, taxed monthly, adds £300 to taxable pay each month [5]. Modern UK payroll software applies this split automatically once the benefit value is entered, so the employer does not recalculate it every run.
What the employee sees
When a benefit is payrolled, HMRC removes it from the employee's tax code so the same benefit is not taxed twice [8]. The payslip then shows the taxable value of the benefit as a separate line that increases taxable pay without increasing net pay [5]. The result is a smoother, more transparent deduction: the employee pays the correct tax month by month rather than facing a tax-code adjustment a year or more after receiving the benefit [3].
Payrolling versus the P11D route
For decades the standard way to report a benefit was the P11D, a form completed after the end of the tax year for each employee who received a taxable benefit [9]. Payrolling and the P11D both settle the same tax, but they settle it at different times and through different mechanisms. The table below sets out the practical differences.
| Feature | Payrolling | P11D route |
|---|---|---|
| When income tax is collected | Each pay period, in real time [[3]](https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll) | After the tax year, via a tax-code adjustment [[9]](https://www.gov.uk/paye-forms-p45-p60-p11d/p11d) |
| Per-employee P11D needed | No [[3]](https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll) | Yes, one per employee [[9]](https://www.gov.uk/paye-forms-p45-p60-p11d/p11d) |
| P11D(b) for Class 1A NIC | Still required [[4]](https://www.gov.uk/guidance/how-to-complete-forms-p11d-and-p11db) | Still required [[4]](https://www.gov.uk/guidance/how-to-complete-forms-p11d-and-p11db) |
| Effect on tax code | Benefit removed from code [[8]](https://www.gov.uk/guidance/tell-hmrc-about-a-change-to-your-company-benefits) | Benefit built into code [[10]](https://www.gov.uk/tax-codes) |
| Registration to start | Before the tax year begins [[3]](https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll) | None [[9]](https://www.gov.uk/paye-forms-p45-p60-p11d/p11d) |
Why HMRC prefers payrolling
HMRC has pushed payrolling as the more accurate method because it settles tax in the year the benefit is enjoyed, rather than leaving a lag that has to be corrected through the tax code [3]. The P11D route creates a delay: a benefit received in one tax year is often not fully taxed until a later year through a code adjustment, which can leave employees with unexpected underpayments [8]. Real-time collection removes that lag and reduces the volume of year-end corrections HMRC has to process [2].
The paper P11D has already gone
Employers who still use the P11D route can no longer file on paper. Since 6 April 2023, P11D and P11D(b) forms must be submitted online, either through HMRC's PAYE Online service or through payroll software, with paper accepted only where a business has ceased trading [4]. The move to online-only filing was an early signal of the wider shift towards real-time, digital benefit reporting that mandatory payrolling completes [9].
National Insurance still has to be paid
A common misunderstanding is that payrolling a benefit removes the National Insurance charge. It does not. Employer Class 1A National Insurance is still due on the taxable value of a payrolled benefit, at 15% for the 2026-27 tax year [11]. Class 1A is an employer-only charge; the employee pays income tax on the benefit but no National Insurance on it [6]. The rate rose to 15% on 6 April 2026, in line with the main employer rate, so benefits are a larger cost item than they were, as covered in the Moonworkers guide to employer National Insurance [11].
Because the Class 1A liability survives payrolling, the employer must still file a P11D(b) each year to declare the total Class 1A due across all benefits, whether payrolled or not [4]. The table below shows how a single company car generates two separate liabilities.
| Element | Who pays | 2026-27 rate | Collected through |
|---|---|---|---|
| Income tax on the benefit | Employee | 20%, 40% or 45% band | Payroll, in real time [[3]](https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll) |
| Class 1A National Insurance | Employer | 15% [[11]](https://www.gov.uk/government/publications/cwg5-class-1a-national-insurance-contributions-on-benefits-in-kind/2026-class-1a-national-insurance-contributions-on-benefits-in-kind-termination-payments-and-sporting-testimonial-payments) | P11D(b), by 22 July [[12]](https://www.gov.uk/employer-reporting-expenses-benefits/deadlines) |
The Class 1A payment deadline
The Class 1A National Insurance declared on a P11D(b) must reach HMRC by 22 July after the tax year ends where payment is made electronically, or by 19 July for a postal cheque [12]. The P11D(b) itself is due by 6 July, and a late return attracts a penalty of £100 for every 50 employees for each month or part-month it is overdue [12]. Interest also runs on any Class 1A paid after the deadline, so the payment date matters as much as the filing date [4].
Mandatory payrolling from 6 April 2027
The most significant change is that payrolling stops being optional for the most common benefits. HMRC confirmed that mandatory real-time reporting of income tax and Class 1A National Insurance on certain benefits will be phased in from 6 April 2027, after the original April 2026 start date was pushed back to give employers and software developers more time [13]. The change is delivered through the Full Payment Submission, which will carry the taxable value of benefits so that both income tax and Class 1A can be reported in real time [2].
Phase one benefits from 6 April 2027
The first phase covers the benefits that account for the bulk of what UK employers provide. From 6 April 2027, payrolling becomes mandatory for company cars, car fuel, vans, van fuel and employer-provided medical benefits [2]. These categories represent roughly 92% of all benefits provided across the UK, so most employers with a benefits scheme will be caught by phase one [14]. HMRC has confirmed that this shift removes 94 real-time information data fields tied to the old benefit-reporting process, streamlining what software has to transmit [2].
Phase two and the exceptions from 6 April 2028
The second phase brings most remaining benefits into mandatory payrolling from 6 April 2028 [2]. Two categories are treated differently: beneficial loans and living accommodation will remain voluntary, because their values are harder to pin down within a pay period [2]. Employers who want to payroll loans and accommodation voluntarily will need to register, and HMRC has said the registration service for that is expected to open from November 2026 [13]. The timeline below summarises the phased rollout.
| Date | What changes | Benefits affected |
|---|---|---|
| 6 April 2027 | Payrolling becomes mandatory | Company cars, car fuel, vans, van fuel, medical benefits [[2]](https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time/the-phased-introduction-of-mandatory-payrolling-for-benefits-in-kind) |
| 6 April 2028 | Payrolling extends to most other benefits | Most remaining benefits in kind [[2]](https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time/the-phased-introduction-of-mandatory-payrolling-for-benefits-in-kind) |
| No fixed date | Stays voluntary | Beneficial loans, living accommodation [[2]](https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time/the-phased-introduction-of-mandatory-payrolling-for-benefits-in-kind) |
How an employer prepares
An employer that already payrolls benefits voluntarily is well placed, because the mechanics of phase one build on the existing process [3]. An employer that still relies on the P11D has more to do, and the preparation is best started well before the tax year in which the rules apply [13].
Registering to payroll voluntarily now
Any employer wanting to payroll benefits before the mandatory start date must register with HMRC through the payrolling benefits and expenses online service, and must do so before the start of the tax year in which payrolling is to begin [3]. Registration cannot be backdated once the tax year has started, so an employer that misses the deadline has to wait until the following year or continue with the P11D for that year [5]. Registering early lets a business test the process on a live payroll before phase one makes it compulsory [13].
Choosing software that is ready
Payrolling in real time depends on payroll software that can carry benefit values on the Full Payment Submission and apply the correct Class 1A treatment [2]. Payroll software that holds the HMRC Recognised badge submits the Full Payment Submission automatically and reflects rule changes without manual reconfiguration, which matters when the data fields themselves are being revised for April 2027 [2]. Platforms that embed payroll through an HMRC-recognised payroll API can pass benefit data straight into the payroll run, so the compliance logic sits in the engine rather than in a spreadsheet [3]. Accountants running benefits across many clients typically manage this from a single payroll bureau platform that flags which schemes still need to move off the P11D [9].
Telling employees what will change
Because payrolling changes how a benefit appears on the payslip and in the tax code, employees should be told before the first payrolled run [5]. HMRC expects employers to give each affected employee written information showing the benefits payrolled and their cash equivalents by 1 June after the end of the tax year [5]. Clear communication reduces queries when an employee notices their tax code has changed and the benefit line has appeared on the payslip [8].
See the effect on take-home pay
An employee weighing up a company car or medical cover can size the monthly tax effect with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross figure.
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e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
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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.
Conclusion
Payrolling benefits in kind moves the tax on company perks from an after-the-fact form into the pay period itself, and the direction of travel is now fixed. The phased rollout from 6 April 2027 makes real-time reporting compulsory for the cars, vans and medical benefits that make up the vast majority of what employers provide, with most other benefits following in 2028. The P11D does not disappear entirely, but its role shrinks to the handful of benefits that stay voluntary and the annual P11D(b) that still settles Class 1A National Insurance.
For employers, the practical message is to prepare rather than wait. Registering to payroll voluntarily, confirming that payroll software can carry benefit values in real time, and briefing employees ahead of the change all reduce the risk of a scramble when phase one begins. The businesses that treat the 2027 deadline as a planning date rather than a surprise will find the transition is mostly a matter of switching on a process their software already supports.
Frequently asked questions
Do I still need to file a P11D if I payroll all my benefits?
An employer that payrolls every benefit does not file individual P11D forms for employees, but it must still submit a P11D(b) each year to declare and pay the Class 1A National Insurance due on those benefits [4]. The P11D(b) is due by 6 July and the Class 1A payment by 22 July where paid electronically [12]. Payrolling removes the per-employee P11D, not the employer-level Class 1A return.
When does payrolling benefits in kind become mandatory?
Mandatory payrolling is phased in from 6 April 2027 for company cars, car fuel, vans, van fuel and employer-provided medical benefits [2]. Most other benefits follow from 6 April 2028, while beneficial loans and living accommodation remain voluntary [2]. The original April 2026 start date was moved back to 2027 to allow more preparation time [13].
Does payrolling a benefit save the employer any National Insurance?
No. Employer Class 1A National Insurance at 15% for the 2026-27 tax year is due on the taxable value of a benefit whether it is payrolled or reported on a P11D [11]. Payrolling changes how the employee's income tax is collected, not the employer's National Insurance liability [6]. The Class 1A is still declared on the annual P11D(b) [4].
Can an employer start payrolling benefits part-way through a tax year?
No. An employer must register to payroll benefits before the tax year in which it wants to start, because registration cannot be backdated once the year is under way [3]. An employer that misses the pre-year deadline continues with the P11D for that year and can register for the following year instead [5]. Once phase one begins on 6 April 2027, payrolling of the mandated benefits happens without a separate registration step [2].
Image prompt for Imagen (also in frontmatter)
Documentary-style wide shot, a UK SME finance manager at a desk in a converted warehouse office reviewing a printed benefits report next to a laptop, soft daylight from a north-facing window, late morning, muted palette of warm grey, oak and paper white, a red-brick city building visible through the window, off-centre composition with the subject in the right third, shot on a Leica Q3 at 28mm f/2.8, photojournalism, 35mm film grain, no AI artefacts, no warped hands, no warped text, landscape orientation 16:9.
