What is a P11D form?

A P11D form is used to report employee BiK that haven’t been processed through payroll. 

In the automotive industry, common benefits reported on a P11D include: 

• Company cars 

• Company fuel benefit 

• Demonstrator vehicles where a taxable benefit arises 

• Private medical insurance 

• Interest-free or low-interest loans 

• Other taxable employee benefits 

Traditionally, employers submit P11D forms to HMRC after the end of the tax year, enabling HMRC to use the reported benefit values to collect the correct amount of  tax from employees. 

While understanding P11Ds remains important, dealerships should now focus on how company car tax reporting will operate under mandatory payrolling.

What are the P11D changes coming in April 2027?

The biggest change is that annual reporting for many BiK is being replaced by real-time reporting through payroll software. 

From 6 April 2027, employers must payroll the following benefits: 

• Company cars 

• Car fuel benefit 

• Vans 

• Van fuel benefit 

• Employer-provided medical benefits (including private medical insurance) 

Most other taxable benefits are expected to move into mandatory payrolling from April 2028. 

What happens to P46(Car) reporting?

When an employee starts using a company car, changes vehicle, or stops having a company vehicle, employers have traditionally needed to notify HMRC using form P46(Car). This information allows HMRC to update the employee’s tax code and collect the correct amount of company car tax during the tax year. 

From April 2027, because company car benefits will be reported through payroll in real time, HMRC will receive company car information through Real Time Information (RTI) submissions rather than relying on separate P46(Car) notifications. 

As a result, employers will need robust processes to ensure company car data is captured accurately and provided to payroll promptly when vehicles are allocated, changed or removed. 

What does mandatory payrolling mean?

Instead of reporting employee benefits once a year through P11Ds, you’ll need to: 

• Calculate Benefit-in-Kind values during the tax year. 

• Include taxable benefit values in payroll. 

• Report benefit information via Real Time Information (RTI). 

• Collect tax from employees throughout the year. 

This means employees are taxed as they receive the benefit rather than waiting for tax code adjustments after the tax year ends. 

Why is HMRC changing the P11D process?

HMRC says the move will: 

• Modernise Benefit-in-Kind reporting 

• Improve accuracy 

• Reduce tax underpayments and overpayments 

• Simplify administration over time 

• Align benefit reporting with existing payroll processes 

HMRC has also confirmed a temporary penalty easement during the first year of implementation to help employers transition smoothly. 

What do the P11D changes mean for automotive dealers and retailers?

Automotive is likely to be among the most affected sectors because company cars remain one of the most common employee benefits. 

Dealerships may need to payroll benefits relating to: 

• Company car schemes 

• Demonstrator vehicles 

• Business leasing vehicles with private use 

• Salary sacrifice cars 

• Management and executive vehicles 

• Fuel benefits 

This means payroll teams, HR departments and fleet managers will need to work closely together to ensure company car BiK values are reported accurately throughout the year.

Dealerships using the averaging method

Many automotive dealers and retailers use HMRC-approved averaging arrangements where employees regularly change vehicle, particularly demonstrator cars. 

Although mandatory payrolling doesn’t change the underlying company car tax rules, businesses should review how their averaging arrangements will operate within a RTI reporting environment. Accurate and timely vehicle data will remain essential to ensure BiK reporting remains correct. 

Will P11Ds still exist after April 2027?

Yes. A common misconception is that mandatory payrolling means the end of P11Ds altogether. 

While annual P11D reporting will largely disappear for benefits covered by mandatory payrolling, some benefits will remain outside the initial phase of the new regime. Employment-related loans and living accommodation are expected to continue to be reported using existing processes.  

As mandatory payrolling is phased in, the number of benefits requiring P11D reporting is expected to reduce significantly, but P11Ds will not disappear entirely from April 2027. 

For dealerships, the P11D value remains a fundamental part of calculating company car tax. 

Even without annual P11D submissions, employers will still need accurate vehicle values to determine BiK charges. 

What happens to the P11D(b)?

The P11D(b) currently reports employer’s Class 1A National Insurance Contributions (NICs) on taxable benefits. 

Under the new framework, HMRC is moving both Income Tax and Class 1A NICs reporting for mandatory payrolled benefits into RTI submissions using payroll software. Additional payroll reporting fields are being introduced to capture data previously reported via P11D and P11D(b) processes. 

As mandatory payrolling is phased in, automotive dealers and retailers should expect Class 1A NICs reporting to become increasingly integrated into payroll reporting rather than remaining a standalone annual process. Employers may still have reporting obligations for benefits that remain outside mandatory payrolling and should continue to monitor HMRC guidance as the new framework develops. 

How to calculate P11D value

Although reporting methods are changing, the way a P11D value is calculated remains the same. 

What is included in a P11D value?

A vehicle’s P11D value typically includes: 

• Vehicle list price 

• VAT 

• Delivery charges 

• Factory-fitted options and accessories 

It excludes: 

• First registration fee 

• First year’s Vehicle Excise Duty (VED) 

Employee company car tax calculation

The standard formula remains: 

P11D Value × Benefit-in-Kind Percentage × Employee Tax Rate 

For example: 

• P11D value: £40,000 

• BiK rate: 4% 

• Employee tax rate: 40% 

£40,000 × 4% = £1,600 taxable benefit 

£1,200 × 40% = £640 annual tax payable 

This calculation remains essential for both annual reporting and mandatory payrolling. 

How can dealerships prepare for mandatory payrolling?

Automotive dealers and retailers should begin planning well before April 2027. Employers won’t need to register separately with HMRC for benefits covered by mandatory payrolling from April 2027. However, businesses should ensure their payroll software providers have implemented the necessary reporting functionality and that internal processes can support the change in process.

1. Audit existing benefits

Review all employee benefits currently reported to HMRC, including: 

• Company cars, including salary sacrifice vehicles 

• Fuel benefits 

• Medical insurance 

• Demonstrator vehicle programmes 

2. Review payroll software

Check that payroll systems will support: 

• Real Time Information reporting 

• Benefit-in-Kind calculations 

• Additional HMRC reporting requirements 

• Class 1A NICs calculations 

HMRC has confirmed reporting will take place through Full Payment Submissions (FPS).  

3. Improve vehicle data management

Dealerships should ensure accurate records exist for: 

• P11D values 

• Vehicle allocation dates 

• Fuel types 

• CO₂ emissions or electric vehicle range 

• Private contributions made by employees, if applicable 

Accurate data will become increasingly important once benefits are processed monthly. Businesses operating an average banding structure should review their current methodology and ensure that calculations remain appropriate, documented and supported by fleet records.

4. Train payroll, HR, scheme coordinators and group administrators

Mandatory payrolling will bring together areas of the business that have traditionally worked independently. 

A collaborative approach will help avoid reporting errors and compliance issues. 

5. Communicate with employees

Employees should understand: 

• Why deductions will appear differently on payslips 

• When tax will be collected 

• That their overall tax liability is not increasing 

Clear communication will help avoid confusion during the transition.

Can ECOS help reduce reporting administration?

An Employee Car Ownership Scheme (ECOS) remains one of the most effective ways to reduce company car administration. 

Because employees own the vehicle rather than receiving it as a company car benefit, an ECOS structured and operated correctly can significantly reduce or remove BiK reporting requirements. 

As mandatory payrolling increases reporting frequency, businesses may wish to review whether their current vehicle arrangements remain the most efficient from both an administration and employee tax perspective.  

An appropriately structured ECOS may help simplify compliance obligations and reduce reporting requirements, when compared with traditional company car arrangements. 

To discover how to get the most out of your existing ECOS, contact your account manager, or to discuss a new scheme, get in touch. 

FAQs

When does mandatory payrolling start?

Mandatory payrolling begins on 6 April 2027 for company cars, car fuel, vans, van fuel and employer-provided medical benefits.  

Will employees pay more tax under mandatory payrolling?

No. Employees will generally pay the same amount of tax, but it will be collected throughout the tax year via payroll. 

Will P11D forms disappear completely?

No. While many benefits will move to payroll reporting, some benefits may remain outside the mandatory payrolling framework until HMRC confirms future requirements. [gov.uk] 

What happens to P11D(b)?

HMRC is integrating Class 1A National Insurance reporting for mandatory payrolled benefits into Real Time Information payroll submissions. The need for P11D(b) reporting is therefore expected to reduce significantly, although some obligations may remain for benefits that fall outside mandatory payrolling. 

Preparing for the future of company car tax reporting

Mandatory payrolling represents the biggest change to P11D reporting, company car tax and BiK administration for many years. For automotive dealers and retailers, now is the time to review systems, processes and vehicle benefit schemes ahead of April 2027. 

While annual P11D reporting for company cars is being phased out, the importance of accurate P11D values, BiK calculations and payroll compliance remain unchanged. Dealers and retailers that prepare early will be best positioned to manage the transition smoothly and avoid unnecessary administrative challenges. 

Data source: gov.uk