Businesses operating company car fleets need to prepare now for a substantial cash flow hit in the 2027/28 tax year. The move to mandatory payrolling of Benefit in Kind (BiK) means that Class 1A National Insurance contributions, currently paid annually in the July following the tax year, will shift to monthly payments through payroll.
This acceleration creates a transitional overlap year where employers will be required to settle both their 2026/27 Class 1A NIC liability in July 2027 and begin paying monthly Class 1A NIC for the 2027/28 tax year from April 2027.
The Real Cost to Your Business
To put this into perspective, a fleet of 100 Plug in hybrid cars could create an additional cash flow requirement of approximately £66,000 in 2027/28 due to the acceleration of Class 1A NIC payments.
This calculation is based on:
- P11D value of £40,000 per vehicle
- BiK rate of 11% (for PHEVs with an electric range of 40–69 miles)
For larger fleets or those with higher-value vehicles, the impact could be significantly greater. This is not a change in the amount of tax owed, it is a fundamental shift in when it must be paid, creating a one-off cash flow challenge that businesses must plan for.
What Is Changing from 6 April 2027?
From this date, HMRC is introducing Phase 1 of mandatory payrolling of Benefit in Kind for company cars and car fuel. Both BiK tax and Class 1A National Insurance contributions will be calculated and collected in real time through payroll, replacing the traditional year-end P11D process.
Grosvenor is advising customers that while this reform brings long-term benefits, including faster, clearer and more predictable tax management, the transition year requires careful financial planning.
Why the Change Is Happening
HMRC is modernising the tax system by integrating benefit reporting into Real Time Information (RTI) payroll software. The objectives are to:
- Simplify processes
- Improve accuracy
- Remove delays and confusion from retrospective tax code adjustments
Company cars, vans with private use, fuel benefit, and employer-provided medical benefits are the first to enter mandatory payrolling in 2027.
What This Means for Employees With These Benefits
- Real-Time Tax Deductions
Income Tax on your company car/van benefit will be deducted directly from your monthly or weekly payslip, keeping your tax payments aligned with your actual benefit usage throughout the year.
- No More P11D Surprises
The current system often results in unexpected tax bills months after the tax year ends. From April 2027, tax collected ‘as you go’ means no more delayed adjustments or sudden tax code changes.
- Removal of Company Car Benefits from Tax Codes
HMRC will automatically remove company car benefits from affected employees’ tax codes ahead of the change, shifting tracking and reporting responsibility to your employer’s payroll system.
- End of P46 (Car) Form Delays
The P46 (Car) form will be replaced by direct RTI payroll reporting, meaning faster processing when you start, change or return a company car.
- Closer Attention to Mid-Year Vehicle Changes
If you swap, take delivery of, or hand back a car mid-year, notify your payroll department immediately. Real-time calculation means your deduction will adjust on the next pay run.
- Transitional Overlap May Also Affect Employees
For the most part, employees with existing and consistent vehicle and employer-funded medical benefits will already be paying the correct amount of tax through their current tax codes.
Benefits for the 2026/27 tax year will continue to be reported on a P11D, with any tax due collected through adjustments to tax codes. Employees should therefore ensure that HMRC is aware of any current benefits they receive, particularly company vehicles and employer-funded medical insurance.
Keeping HMRC informed now can help avoid larger tax charges in 2027. For example, if private medical insurance has recently been provided, HMRC may not become aware of the benefit until the P11D is filed, potentially leading to a tax underpayment and a larger subsequent adjustment.
What Drivers Should Do Now
- Check your payslips regularly from April 2027 to understand how BiK tax is being applied
- Notify payroll promptly if your vehicle changes
- Review your tax code before April 2027 to confirm car benefits have been removed
What Employers Should Do Now
- Assess the cash flow impact of two years’ Class 1A NIC payments in 2027/28
- Budget accordingly; particularly if operating larger or higher-value fleets
- Review payroll systems to ensure RTI compatibility
- Communicate with drivers about the changes and their responsibilities
What About Other Benefits
Mandatory payrolling of most other Benefits in Kind will be introduced from April 2028. Benefits such as interest free or low interest loans and employer provided accommodation should still be reported on the P11d.
In Summary
While mandatory payrolling will ultimately deliver greater transparency, fewer surprises, and a more modern approach to company car taxation, the transition year presents a real financial challenge for businesses. The accelerated payment of Class 1A NIC could represent a significant unplanned outlay, which is why planning now is essential.
For support, advice or more information, please contact Grosvenor on 01536 536 536 or email info@grosvenor-leasing.co.uk
www.grosvenor-leasing.co.uk
