From 6 April 2027, employers must report company cars, vans and fuel through payroll and take the tax off employees' pay in real time, instead of reporting them on a P11D after the tax year ends. It is the first phase of mandatory payrolling of benefits in kind, and it is in Finance Bill 2026-27. Company car tax itself does not change: the same benefit percentages apply, and an electric car is still taxed at 5% of its P11D value in 2027/28. What changes is when the tax is collected and who reports it. For a director or finance lead with company cars on the fleet, there are five months to get payroll ready. HMRC's registration for voluntary payrolling reopened on 5 November 2026.
What is changing, and when
| Date | What happens |
|---|---|
| 5 November 2026 | Registration reopens for employers who want to payroll other benefits voluntarily in 2027/28. Existing registrations carry on automatically. |
| 5 April 2027 | Last day to withdraw from voluntary payrolling and go back to P11D and P11D(b) for benefits that are not mandated. |
| 6 April 2027 (phase 1) | Company cars, car fuel, vans, van fuel and employer-provided medical benefits must be reported through payroll, with Income Tax and Class 1A National Insurance dealt with in real time. |
| 6 April 2028 (phase 2) | Most other benefits in kind follow. Employment-related loans and employer-provided living accommodation stay outside the mandatory scheme and can be payrolled voluntarily. |
The Budget on 28 October 2026 confirmed the two phases and said the legislation is in Finance Bill 2026-27, which is still going through Parliament. HMRC's detailed guidance is published as interim guidance, with more technical detail to follow.
What it means for company car drivers
- Tax comes out of pay as you go. HMRC says tax on mandated benefits will be deducted in real time through pay. Until now, unless your employer already payrolls benefits voluntarily, company car tax has usually been collected through your tax code, with the employer reporting the car on a P11D after the year ends.
- Your tax code changes. HMRC will take the current year's mandated benefit out of your tax code, so it is not taxed twice.
- A higher bill for a while is possible. HMRC warns that during the first two years some employees may pay for the current year's benefit through payroll while still paying for an earlier year through the existing process. Deductions may be higher than expected for a time.
- There is a limit. An employer must not deduct more than 50% of an employee's pay in tax in a pay period. Any tax that cannot be collected is carried forward where possible, and anything left at the end of the year is collected by HMRC afterwards, usually through a P800 or Simple Assessment, or Self Assessment if you already file one.
What it means for directors and finance leads
- Payroll does the work. The value of each company car, van and fuel benefit is reported through your payroll software, alongside your other PAYE obligations. HMRC has published the additional benefit fields it expects to require on Full Payment Submission returns.
- Class 1A moves too. HMRC says Class 1A National Insurance will be reported and paid alongside the taxable benefits in real time. For these benefits it is no longer dealt with at the end of the year. The Class 1A rate is 15% in 2026/27.
- P11D for mandated benefits goes. Company cars, vans and fuel move away from end-of-year P11D reporting. If you also provide loans or accommodation, or have globally mobile employees excluded from the scheme, you may need to run both systems for a time.
- Smaller employers have more to change. The BVRLA notes that many larger organisations already payroll vehicle benefits, so the bigger adjustment falls on businesses that still use P11Ds.
A worked example
For illustration, two company cars with the same hypothetical £50,000 P11D value in 2027/28, the first year of mandatory payrolling. The electric car is at 5%. The petrol car is at 37%, the maximum percentage for that year. The monthly figures assume the annual tax is spread evenly over 12 monthly pay periods; your payroll software will apply HMRC's method.
| Electric car (5%) | Petrol car (37%) | |
|---|---|---|
| Taxable benefit for the year | £2,500 | £18,500 |
| Tax for a 20% taxpayer | £500 a year (about £42 a month) | £3,700 a year (about £308 a month) |
| Tax for a 40% taxpayer | £1,000 a year (about £83 a month) | £7,400 a year (about £617 a month) |
| Employer Class 1A National Insurance, if the rate stays at 15% | £375 a year | £2,775 a year |
The figures assume a full tax year, no employee contributions and no other adjustments. They are not a quote. The point is that the tax becomes visible on every payslip, so the gap between an electric car and a petrol or diesel car will be easier for drivers to see. Run your own numbers with our company car tax calculator, and see every band to 2030 in our company car tax guide.
What does not change
- The rates. The benefit percentages are set separately. In 2027/28 an electric car is at 5%, rising to 7% in 2028/29 and 9% in 2029/30. The Budget set 2030/31 one point higher again, with a 40% maximum for other cars. Our Budget 2026 round-up has the detail.
- How the benefit is worked out. It is still the P11D value multiplied by the benefit percentage for the car's CO2 emissions and, for plug-in hybrids, electric range.
- The lease itself. Payrolling changes how the employee's tax is collected. It does not change a contract hire agreement or who the registered keeper is.
What to do now
- List every vehicle benefit you provide: company cars, vans, and any fuel for private use, with each car's P11D value, CO2 figure and, for plug-in hybrids, electric range.
- Talk to your payroll provider or software supplier about reporting benefits and Class 1A in real time from April 2027.
- Tell your drivers. HMRC suggests employers plan how they will explain the change, including the tax code change and the possibility of higher deductions for a while.
- Review the fleet before April. If a car is due for renewal, the choice between electric, plug-in hybrid and petrol will show up in every payslip from next April. Our guide to company cars for directors covers the wider choices.
If you would like your company cars compared on tax, term and mileage before the change, talk to our team on 01752 429950 or send an enquiry. You can also browse business car leasing and electric car leasing.
Sources, checked 4 November 2026: HMRC, Mandatory reporting of benefits in kind in Real Time Information from April 2027; HMRC, Mandatory payrolling of benefits in kind and expenses (interim guidance); HMRC, Employer Bulletin, October 2026; HM Treasury, Budget 2026 overview of tax legislation and rates; HMRC, company car benefit percentages; HMRC, Rates and thresholds for employers 2026 to 2027; BVRLA, Payrolling of vehicle benefits confirmed from 2027, 23 June 2026. The legislation is still before Parliament and HMRC's guidance may change. Tax treatment depends on individual circumstances. This is general information, not tax advice.
Intelligent Vehicle Finance is a credit broker, not a lender, and receives a commission from the lender or funder when an agreement completes. A trading style of XLCR Vehicle Management Ltd, authorised and regulated by the Financial Conduct Authority (FRN 315268). Subject to status and availability.
By the Intelligent Vehicle Finance editorial team. Last updated: November 2026.