If your business provides private medical insurance an important payroll change is approaching.
From 6 April 2027, employers will have to payroll certain benefits in kind, rather than relying on the traditional year-end reporting process.
For SMEs, this isn’t simply a payroll change. It means making sure your benefits data is accurate, your internal processes work and your employees understand why their payslip may look different.
The good news is there is still time to prepare for benefits reporting. In our latest article we share what’s changing, and five practical things you can do now to get ahead.
What is changing with benefits in kind?
Currently, many taxable employee benefits are reported to HMRC after the end of the tax year using forms such as the P11D. Some employers already payroll benefits voluntarily, but it isn’t currently compulsory for most benefits.
That starts to change from 6 April 2027.
HMRC is introducing mandatory payrolling of benefits in kind in phases. From April 2027, employers will be required to payroll:
- private medical and other employer-provided medical benefits
- company cars
- car fuel
- vans
- van fuel
This means the taxable value of these benefits will be reported through payroll, with Income Tax collected in real time. Class 1A National Insurance contributions on payrolled benefits will also move into real-time reporting. Most other benefits in kind are expected to follow from April 2028.
So, while the P11D isn’t disappearing completely in April 2027, this is the beginning of a significant change in how employers manage and report benefits.
Why does this matter for SMEs?
At first glance, this might look like something your payroll provider or accountant can simply take care of. But payroll can only report the information it has.
If an employee joins your private medical insurance scheme, adds a family member or leaves a benefit, that information needs to reach the right person accurately and at the right time.
For businesses with dedicated HR, payroll and benefits teams, there may already be established systems for sharing that information. But for smaller firms, this isn’t always the case.
Benefits might be managed by one person, payroll by another and employee changes communicated through emails or spreadsheets. You may also rely on an external accountant or payroll provider. That makes it worth looking at your processes now, rather than discovering the gaps when the new rules are already in force.
Changes to Private Medical Insurance
For many SMEs, Private Medical Insurance (PMI) is likely to be one of the most relevant changes.
Employer-funded PMI is generally treated as a taxable benefit in kind and medical benefits are included in the first phase of mandatory payrolling from April 2027. That means businesses offering PMI should start thinking about how information gets from their insurer or benefits adviser to whoever runs payroll.
Key questions to consider include:
- Who knows when an employee joins or leaves the scheme?
- How are changes to cover recorded?
- What happens if an employee adds or removes a partner or family member?
- How quickly does that information reach payroll?
- And who is ultimately responsible for checking that the information is correct?
The new rules make accurate and timely benefits information more important because tax will be calculated through payroll during the year rather than dealt with retrospectively.
What will employees notice?
Employees receiving affected benefits may see changes to the way tax is collected through their payslip. That doesn’t necessarily mean the benefit itself has changed or become more expensive. It is the timing and method of collecting the tax that is changing. But an employee opening their payslip isn’t necessarily going to know that.
Without some advance communication, a different tax deduction can quickly turn into a question for their manager, HR or payroll. A short, straightforward explanation ahead of April can help employees understand:
- What is changing
- Why it is changing
- When it takes effect
- Which benefits are affected
- What they might notice on their payslip
- Who they should speak to if they have questions.
The aim is simply to make sure the change doesn’t come as a surprise.
5 things employers can do before April 2027
You don’t need to wait until the end of the tax year to start preparing. A few relatively simple checks now could make the transition much smoother.
- Make a list of the benefits you provide
Create a list of the employee benefits your business currently provides and identify which are taxable benefits in kind.
It’s also worth noting the other taxable benefits you provide, even if they aren’t affected until the next phase. This gives you one clear picture of your benefits package and what needs attention now versus later.
- Speak to your payroll provider
Don’t assume your payroll provider, accountant or software will simply take care of everything automatically. Ask what they are doing to prepare for mandatory payrolling and, crucially, what they need from you.
Useful questions include:
- Will our payroll software support the new requirements?
- What benefits information will you need from us?
- When will you need it?
- How should we report changes during the year?
- Who will be responsible for checking the taxable values being reported?
If you outsource payroll, having this conversation now should give you time to resolve any gaps before April.
- Follow the journey of your benefits data
Pick one of your affected benefits and follow what happens when something changes.
For example, if an employee joins your private medical insurance scheme tomorrow, who is told? Where is that information recorded? Who tells payroll? How long does it take? Do the same for somebody leaving the business or changing their level of cover.
If there isn’t a clear answer, that’s a process worth fixing. You may not need sophisticated new technology. For many smaller businesses, the solution could simply be clearer responsibilities, better record keeping and an agreed process for communicating changes.
- Plan what you’ll tell employees
Don’t make the April payslip the first-time employees hear about the change. Decide how and when you’ll communicate with people who receive affected benefits.
For example, you could include a short explanation in an employee benefits update early next year and send a reminder closer to April. Keep the language simple and avoid unnecessary tax jargon. Employees primarily need to understand whether they’re affected and what they might notice.
- Use this as an opportunity to review your benefits
Changes to benefits reporting are also a useful prompt to look at your employee benefits package more broadly.
- Do you know which benefits employees value?
- Are employees using the benefits you’re paying for?
- Are new starters told what is available to them?
- Are your benefits still appropriate for your workforce and your business?
- And do you understand the tax treatment and administration of each benefit?
Reporting may be changing, but the purpose of employee benefits hasn’t. They should support your people and deliver value for your business.
If you’re going to spend time reviewing how your benefits are administered, it’s worth checking that the benefits themselves are still doing the job you want them to do.
Your April 2027 readiness checklist
Before the new tax year, your business should ideally be able to answer yes to the following:
- Do we know which of our employee benefits are affected from April 2027?
- Do we have an accurate record of who receives those benefits?
- Have we spoken to our payroll provider or payroll team about the changes?
- Do we know what information payroll will need and when?
- Is there a clear process for communicating benefit changes during the year?
- Does everyone involved understand who is responsible for what?
- Have we planned how we’ll explain the changes to affected employees?
Need help getting your benefits in order?
At Bespoke Benefits, we work with SMEs to make employee benefits easier to understand, manage and communicate.
Whether you want to review your existing benefits, understand how well they’re working for your employees or make sure your package is fit for the future, we’re here to help.
Get in touch with the Bespoke Benefits team for a friendly, no-obligation conversation about your employee benefits.
This article is for informational purposes only and does not constitute financial, medical, or legal advice. The information provided reflects general trends and insights as of the date of publication and may not apply to all circumstances. For income protection insurance or employee benefits, we recommend consulting with a qualified professional or insurance advisor.
