From 6 April 2027, the way employers report and collect tax on company car Benefit in Kind (BiK) is changing.

For businesses providing company cars, including electric vehicles, Benefit in Kind will move into real-time payroll reporting, replacing much of the traditional end-of-year P11D process.

Here’s what employers and company car drivers need to know.

What is changing with Benefit in Kind?

Currently, most employers report taxable benefits such as company cars to HMRC after the end of the tax year using a P11D, unless they have voluntarily chosen to payroll those benefits already.

From 6 April 2027, payrolling will become mandatory for several common benefits, including:

• Company cars

• Car fuel

• Vans

• Van fuel

• Employer-provided medical benefits

Employers will need to calculate and report the taxable value of these benefits through their payroll software using Real Time Information (RTI). Income Tax and Class 1A National Insurance contributions will therefore be calculated and reported during the tax year rather than relying on the traditional year-end process. 

What does this mean for company cars?

For employers providing company cars, the biggest difference is when the tax is dealt with.

Rather than the company car benefit being reported after the end of the tax year, its taxable value will be included through payroll throughout the year.

In simple terms, the annual taxable value of the company car benefit will be reflected across the employee's pay periods, with the relevant tax deducted through PAYE.

HMRC says the aim is to make tax liabilities more transparent and accurate while reducing the need for retrospective tax adjustments.

Does this change how company car tax is calculated?

No. The change is primarily about how and when the benefit is reported and the tax collected, rather than changing the fundamental way Company Car Tax is calculated.

For electric company cars, Benefit in Kind will still be based on factors including the vehicle's P11D value and the applicable BiK percentage.

The difference from April 2027 is that employers will need to make sure the information is captured correctly within their payroll processes.

Benefit-in-Kind Rates

What about electric company cars?

Electric cars will be included in the new reporting requirements in exactly the same way as other company cars.

However, fully electric vehicles continue to benefit from comparatively low Company Car Tax rates, which is one of the reasons EVs remain an attractive option for businesses and employees.

For the 2027/28 tax year, the Benefit in Kind rate for a fully electric car is scheduled to be 5%.

For example, an electric company car with a P11D value of £40,000 would have a taxable benefit of:

£40,000 × 5% = £2,000

A 20% taxpayer would therefore pay approximately £400 in Company Car Tax over the year, while a 40% taxpayer would pay approximately £800, subject to individual circumstances.

The move to real-time reporting doesn't remove that tax advantage, it simply changes how the benefit and associated tax are processed.

Benefit-in-Kind Rates

Why is the system changing?

Mandatory payrolling was originally expected to begin in April 2026, but HMRC delayed implementation until April 2027 to give employers, payroll providers and other stakeholders more time to prepare. 

HMRC expects the move towards real-time reporting to simplify the system over time, improve transparency for employees and reduce some of the administration associated with end-of-year reporting. 

What should employers do now?

April 2027 may still feel some way off, but businesses providing company cars should start considering how the change will affect their payroll processes.

That includes making sure payroll teams and providers are aware of the new requirements, reviewing how company car information is currently recorded and ensuring there is a clear process for communicating changes such as a new vehicle or an employee joining or leaving a company car scheme.

HMRC's detailed operational rules are continuing to develop ahead of implementation, so employers should keep an eye on further guidance as April 2027 approaches. 

Company cars are changing – but EVs remain an attractive benefit

The administration behind company cars may be changing, but the reasons businesses choose electric vehicles aren't.

With low Benefit in Kind rates, lower running costs and an increasingly broad choice of electric cars available, EVs can continue to provide an attractive company car benefit for both employers and employees.

Benefit-in-Kind Rates