From 6 April 2027, employers must report specified taxable benefits through payroll in real time. Employer-provided medical benefits, including most private medical insurance, are in the first phase. This is a phased change, not the abolition of P11D forms for every benefit or employer. HMRC describes its guidance as interim and says it will be updated; check the latest rules and software requirements before the change takes effect.
What Is Changing?
From 6 April 2027, mandatory payrolling applies to company cars, car fuel, vans, van fuel and employer-provided medical benefits. Employers report the taxable values through a Full Payment Submission (FPS) for each payroll date. The reported benefit value is used to calculate the employee's income tax through PAYE; it is not extra cash wages.
Class 1A National Insurance is a separate employer liability, not employee National Insurance deducted from the employee's pay. HMRC's interim guidance says the relevant Class 1A amounts will also be reported in real time for benefits in the mandatory phase. Do not assume the current year's Class 1A rate will apply in 2027/28; check the rate for the relevant tax year.
Most other benefits are due to enter phase 2 from 6 April 2028. Employment-related loans and accommodation are outside the announced mandatory phases for now and can be payrolled voluntarily. HMRC also says employers may choose to exclude globally mobile employees (those working across countries) from mandatory payrolling through a service expected in November 2026; year-end P11D and P11D(b) reporting will continue for them. More generally, P11D and P11D(b) reporting continues for benefits that are not payrolled, and the existing year-end process still applies to benefits provided in 2026/27.
Why Does This Matter for Private Health Insurance?
HMRC says employees usually pay tax on the cost of medical insurance premiums paid by their employer, although exemptions and valuation rules may apply. Confirm the taxable cash equivalent for the specific policy and arrangement; do not assume that every premium or payment is treated in the same way.
Example: If £1,200 is the correct annual taxable cash equivalent for a benefit and the employee is paid monthly, HMRC's interim method gives £100 per month (£1,200 ÷ 12) to include with earnings when calculating income tax. The £100 is not an extra £100 in cash pay or a £100 deduction from take-home pay. The employee's actual tax depends on their circumstances and applicable tax rates.
Under the current year-end process, employers may use a P11D, and HMRC may collect the employee's tax through a later tax-code adjustment. The timing varies. From 6 April 2027, tax on in-scope benefits is intended to be collected in the year the benefit is provided. Some employees may still be paying tax-code adjustments for earlier years while paying tax in real time on current benefits.
What Employers Must Do Before April 2027
- List the benefits you provide and identify which are taxable and included in the first phase. Confirm the cash equivalent, employee contributions and any special valuation rules with your payroll adviser.
- Check payroll software and data flow. HMRC says employers do not need to register for mandatory benefits. Its guidance says voluntary payrolling registration for non-mandatory benefits is expected to open in November 2026.
- Plan how policy and employee changes reach payroll in time for each pay run, and check that your software supports the required FPS reporting.
- Explain the change to employees. Their tax on current in-scope benefits will be collected in the year they receive them. Previous-year tax adjustments may continue at the same time.
- Plan for the Class 1A cash-flow transition. Employers will still need to settle Class 1A NIC for benefits from 2026/27 under the old year-end timetable while beginning real-time reporting and payment for in-scope benefits from 2027/28.
Is Group Health Insurance Still Worth It?
The reporting change does not itself determine whether a policy is worthwhile. For corporation tax, an employer-paid health-insurance premium is not a separate tax credit. If it qualifies as a business expense, it reduces taxable profits rather than reducing the tax bill by the full premium. HMRC says normal employee costs are generally allowable, subject to the rule that trading expenses must be incurred wholly and exclusively for the trade. Excessive remuneration and costs with a non-trade purpose can be disallowed. Companies with investment business follow separate management-expense rules. Whether a particular premium qualifies depends on the company's activity and how the cover is provided, so do not promise a fixed tax saving.
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HMRC sources
- HMRC interim guidance: phased introduction of mandatory payrolling
- HMRC interim guidance: reporting requirements and FPS
- HMRC interim guidance: preparing for mandatory payrolling
- HMRC interim guidance: how benefit values are payrolled
- HMRC: tax on employer-paid medical insurance
- HMRC Business Income Manual: employee costs and corporation-tax deductions
- HMRC Business Income Manual: the wholly-and-exclusively test
- HMRC Company Taxation Manual: insurance premiums for investment companies
Last checked against the HMRC guidance linked above on 4 October 2026. HMRC describes its payrolling material as interim guidance; check for later updates and legislation. This article is for general information only and does not constitute tax advice.