From 6 April 2027, the way UK employers handle company cars changes for good. Tax on cars, vans and fuel will no longer be settled once a year on a P11D form. It will run through payroll, every pay period, in real time.
At the same time, company car tax rates keep climbing for electric vehicles, and plug-in hybrids are heading for a sharp rise in 2028. For business owners, 2027 is the year the admin, the cash flow and the fleet choices all shift at once.
The good news is that there are still around six months to get ready. This guide sets out what is changing, what it will cost, and what to do before April.
The big change: company cars move into payroll from April 2027
Mandatory payrolling of benefits in kind (BiKs) was first planned for April 2026, then pushed back a year. In June 2026, HMRC confirmed it would arrive in two phases rather than all at once. As the Chartered Institute of Taxation reported, phase one starts on 6 April 2027 and covers:
- Company cars
- Car fuel
- Vans
- Van fuel
- Employer-provided medical benefits
Most other benefits follow in phase two from April 2028. Employment-related loans and living accommodation stay voluntary for now.
In practice, this means company car tax is calculated and deducted through PAYE each pay period. Class 1A National Insurance on those benefits is also reported and paid through payroll, rather than in one lump the following July.
There is one awkward wrinkle for 2027/28. Most businesses will run two systems side by side: real-time payrolling for cars, vans, private medical and P11D reporting for everything else.
If you offer gym memberships, mobile phones or other perks alongside company cars, expect a year of double handling unless you want to payroll “non-mandatory” benefits in kind voluntarily.
HMRC has signalled some leniency. Errors in mandatory payrolling for 2027/28 should not attract inaccuracy penalties unless they are deliberate. Late filing and late payment penalties on RTI returns still apply as normal.
What Company Car Tax Will Look Like in 2027/28?
The tax itself is worked out the same way as before: the car’s list price (P11D value) multiplied by its BiK percentage, then by the driver’s income tax rate. What changes is the percentage.
| Car type | 2026/27 | 2027/28 | 2028/29 |
| Fully electric (0g/km) | 4% | 5% | 7% |
| Plug-in hybrid (1–50g/km) | 4%–16% by electric range | 5%–17% by electric range | 18% flat |
| Petrol and diesel | Up to 37% | Up to 37% (bands frozen) | Bands rise 1 point |
Electric cars rise one point to 5% in 2027/28. On a £40,000 EV, that is a £2,000 taxable benefit, or £400 a year for a basic-rate driver. It is still a fraction of what a comparable petrol car costs.
Plug-in hybrids need the most care. A temporary easement treats many newer PHEVs as emitting 1g/km for tax purposes, which keeps their rates low.
The government has published full details of the PHEV easement on GOV.UK. It runs only until 5 April 2028. After that, every car in the 1–50g/km band moves to 18%, regardless of electric range. A PHEV taxed at 8% today could more than double overnight.
Petrol and diesel bands stay frozen through 2027/28, but the top rate is already 37%. Add the car fuel benefit charge if you pay for private fuel.
The multiplier is £29,200 for 2026/27, according to HMRC’s published travel and fuel rates, and the 2027/28 figure is usually confirmed at the Autumn Budget.
Vans are simpler. The flat van benefit charge is £4,170 for 2026/27, and zero-emission vans carry no benefit charge at all.
Cash Flow, Class 1a and Your Employees’ Pay Slips
The change is not only an admin job. It moves money around.
Your cash flow. Today, Class 1A National Insurance on company cars (currently 15% of the benefit value) is paid annually, months after the tax year ends.
From April 2027, it is paid monthly through payroll. For a business with ten company cars, that turns one predictable summer bill into a steady monthly outgoing. Budget for it now.
Your employees’ take-home pay. Today, most company car drivers pay tax on their car benefit through a tax code adjustment, which collects the tax for the previous year’s benefit.
From April 2027, the current year’s company car benefit will be taxed in real time through payrolling, with the benefit value added to pay each period and taxed there.
Employees will still have a tax code adjustment for the previous year’s benefit, but HMRC will no longer issue tax code adjustments for the current year, because payrolling has already collected it.
This means employees are not paying tax twice, they are paying last year’s tax through the code and this year’s tax through payroll, instead of waiting for a future tax code adjustment.
The overall tax is the same, but the timing of deductions changes, and some employees may see a shift in net pay during the transition year.
No one likes a surprise on their pay slip. A short note to staff in early 2027 explaining the change will save a lot of questions later.
Mid-year changes. Real-time reporting means real-time accuracy. A driver who swaps cars, goes on long leave, or starts paying towards private fuel now needs updating in payroll that month, not at year end. Your fleet records and payroll have to talk to each other.
Your Preparation Checklist Before April 2027
- Audit every vehicle. List each company car and van, its P11D value, CO2 figure, electric range, registration date and driver. For PHEVs, check whether the easement applies.
- Check who gets private fuel. Fuel benefit is often the most expensive part of a petrol or diesel car. Decide whether it is still worth offering.
- Talk to your payroll provider or software supplier. Confirm your system can calculate and report car and van benefits each pay period, and that it handles mid-year changes.
- Plan for two reporting routes in 2027/28. Cars, vans, fuel and medical go through payroll. Everything else stays on P11D for one more year unless you want to payroll “non-mandatory” benefits in kind voluntarily.
- Rework your cash flow forecast. Move Class 1A from an annual July payment to a monthly cost.
- Review your fleet policy. With EVs at 5% and PHEVs facing 18% from 2028, new orders and lease renewals deserve a fresh look. Avoid long PHEV leases that run well past April 2028 without costing them out.
- Brief your employees. Explain what will change on pay slips and why, before the first April pay run.
For many small and medium-sized businesses, the simplest route is to hand this to specialists.
An outsourced provider such as Tunedin Payroll can set up benefit payrolling, keep vehicle changes in step with each pay run, and keep your RTI submissions accurate, leaving you free to run the business.
Final Thoughts
April 2027 is the start of a two-year shift, not a one-off deadline. Company cars and private medical move into payroll first, most other benefits follow in 2028, and PHEV drivers face a steep rise the same year.
Businesses that audit their fleet, update their payroll set-up and talk to staff this winter will barely notice the switch. Those that leave it to March risk errors, unhappy drivers and an unexpected hit to cash flow. Start now, and 2027 can be the year your benefits admin finally gets simpler.
Rates and thresholds are correct as of October 2026 and may change at the next Budget. Always check the latest HMRC guidance or speak to a qualified adviser before making decisions.
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