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Company car tax goes monthly, and July 2027 brings small firms a double bill

ended 25. September 2026

HMRC has published draft guidance confirming that perks like company cars and private medical cover will be taxed through payroll every month from 6 April 2027, not once a year on a P11D. https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time

From April 2027, employers must report company cars, car fuel, vans, van fuel and employer-provided medical benefits on every payroll run. Most other benefits in kind follow in April 2028. Employment-related loans and accommodation stay voluntary. 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

Staff will pay tax on their perks as they go, instead of through a tax code estimate. Employers can't take more than 50% of someone's pay in tax in any pay period. Anything left over carries forward, or HMRC collects it after the tax year ends. https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time/what-happens-when-the-full-amount-of-tax-cannot-be-collected-either-within-a-pay-period-or-tax-year

The sting is cash flow. HMRC itself warns that in July 2027 employers will pay the last annual Class 1A National Insurance bill for 2026/27 at the same time as in-year Class 1A for 2027/28. https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time/getting-ready-for-mandatory-payrolling-of-benefits-in-kind

There's a soft landing, but only a small one. In 2027/28 there are no inaccuracy penalties unless the errors are deliberate, but late filing and late payment penalties still apply. https://www.gov.uk/guidance/draft-guidance-and-legislation-to-aid-preparation-for-reporting-benefits-in-kind-in-real-time/penalties-and-interest

Pick a side:

  • Will real-time benefits tax push small firms to quietly drop company cars and health cover, or is this just a fuss about paperwork?
  • Is a double Class 1A bill in one July fair, or should small businesses get a longer run-in than the big corporates?
  • Paying tax on perks as you go: is it fairer for employees, or a pay cut by the back door?
  • Loans and accommodation stay voluntary. Is that sensible flexibility, or a two-tier system HMRC should have closed?

5 responses from the Newspage community

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Kate UnderwoodVerified
Founder & Chief People Strategist at Kate Underwood HR & Training
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Honestly, most small firms I work with do the P11D once a year with a strong coffee and a lot of muttering, then forget it exists. Not any more. It's every month now, and it lands on top of the tips law, rolled-up holiday pay, flexible working requests from day one, ACAS deadlines, the new unfair dismissal rules... I could keep going, but you've got a payroll to run. It's the same owner wearing every hat. Oh, and two Class 1A bills in the same July. Lovely. Ring your payroll provider now, and warn your staff before their payslip does.
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Tony SanchezVerified
Founder at Bridging Loan Directory
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As a small business owner, I can see the sense in employees paying tax on benefits as they receive them. Clearer monthly reporting could prevent a surprise adjustment later.

The difficult part for a small firm is the transition. In July 2027, employers will still have the final annual Class 1A bill for the previous tax year while already paying Class 1A on current benefits through payroll. That is a cash-flow overlap, even though it is not tax on the same benefit twice.

I would favour a longer payment run-in for smaller employers. It would give them time to adapt payroll and explain any change in take-home pay to staff, without making company cars or medical cover harder to provide.
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Tony RedondoVerified
Founder at Cosmos Currency Exchange
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Unlike the public sector, private businesses don't have a magic money tree. Mandatory payrolling of benefits in kind from April is, my accountant tells me, a measure that's been on the cards for years and put back at least twice. Whilst no time would be good, coming on top of business taxes, the rise in the NMW, employer NICs and the relentless red tape (the Employment Rights Act especially) it's yet another hit on cashflow. Expect firms to shift towards salary sacrifice EV schemes and automated software rather than drop company cars and health cover. The immediate threat is cashflow: in July 2027, the legacy 2026/27 Class 1A bill lands as live 2027/28 contributions begin. For employees, real-time tax is fairer with no surprise back-taxes or delayed code changes though live deductions may feel like a pay cut. Keeping beneficial loans and accommodation voluntary is pragmatic: the calculations are too complex for standard payroll software to automate yet.
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Nouran MoustafaVerified
Practice Principal & IFA at Roxton Wealth
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This is less a new tax than a new moment of truth.

Employees already pay tax on company cars and medical cover, but from April 2027 they will see the cost hitting their payslip as they go. That is arguably clearer, but psychologically it will feel very different when take-home pay drops immediately.

For employers, the bigger problem is transition. HMRC itself warns that 2027/28 creates a one-off Class 1A overlap, with the final liability under the old system colliding with real-time payments under the new one.

That matters far more to a small employer than a giant corporate with deeper cash reserves.

The danger is not necessarily that firms suddenly scrap benefits. It is that perks once seen as easy recruitment tools start getting reviewed line by line once their monthly payroll cost becomes impossible to ignore.
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Harvey DhillonVerified
Founder & CEO at Zmartly
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Paying tax on perks as you go is fairer, but for some staff the first year will feel like a pay cut. From April 2027 HMRC plans to take tax on cars and health cover from each payslip, but leave earlier years' unpaid perk tax in tax codes. So anyone who was paying behind may pay this year's perk tax and an earlier year's shortfall at the same time, and HMRC's draft guidance warns it might appear they are paying tax twice. Employers should warn staff now, not when the payslips land. The overlap is a timing cost, not extra tax. But one start date for every size of employer isn't fair: a small firm often hasn't got the cash buffer to pay two years of Class 1A in the same year, so it should get a longer run-in. I doubt many will drop cars or health cover over what's mostly paperwork: payrolling doesn't change how much tax is due. Leaving loans and accommodation voluntary is a two-tier system HMRC should close, because it can leave firms running the old year-end forms alongside payroll.