Three employment tax changes are converging in 2026 and 2027 that every CFO running a UK payroll needs to have mapped, budgeted and assigned to a project owner right now. The mandatory payrolling of benefits in kind arrives in April 2027, bringing with it the end of the P11D as most employers know it. New benefit exemptions took effect in April 2026 — and most finance teams have not reviewed whether they are capturing them. And the salary sacrifice pension cap, which received Royal Assent just six weeks ago, will reshape reward strategy for millions of workers from 2029. None of these are hypothetical. All three require action this year.
The P11D Is Being Abolished — But Not Yet
The mandatory real-time payrolling of benefits in kind will take effect from 6 April 2027. This was originally scheduled for April 2026 but was pushed back by twelve months following representations from payroll software providers and employers who needed more time to integrate systems and cleanse benefit data. The delay is welcome. It is not, however, a reason to defer preparation.
From April 2027, employers will be required to report most taxable benefits in kind and pay Class 1A National Insurance in real time through payroll — via the Full Payment Submission — rather than submitting annual P11D and P11D(b) forms after the tax year ends. The 6 July deadline that payroll teams have lived with for decades effectively disappears for most employers. Two categories — employment-related loans and employer-provided living accommodation — will remain on P11D initially, but the trajectory is clear.
There is an important practical consequence that the headline rarely captures: Class 1A NIC moves from a single annual payment in July to monthly remittance through payroll. For businesses with substantial benefit-in-kind populations, this accelerates cash outflows by up to eleven months. If your treasury model still shows a lump-sum July NIC payment for 2027/28 and beyond, it is wrong.
The Voluntary Registration Window Has Closed
Employers who wanted to trial voluntary payrolling of benefits for the 2026/27 tax year had to register with HMRC before 5 April 2026. That window has passed. More significantly, from 6 April 2026 HMRC has legislated to prevent employers from registering for voluntary payrolling at all — a necessary step to avoid undermining the mandatory regime that follows. The opportunity to pilot before the April 2027 go-live has now effectively gone for anyone who did not register in time.
What this means in practice: if your organisation has not been voluntarily payrolling benefits, you are going into a mandatory regime from a cold start in April 2027. That makes preparation in the twelve months remaining critical. The key workstreams are data quality (benefit valuations need to be accurate and timely, not reconstructed at year end), system readiness (your payroll software must be capable of processing BIKs in real time through FPS), and ownership (who in your organisation is responsible — payroll, HR, tax, or finance — and are the governance lines clear?).
HMRC is expected to publish detailed technical guidance in Autumn 2026. Do not wait for that guidance before starting internal preparations. The data cleanse and system assessment work can and should begin now.
Three New Benefit Exemptions From April 2026
While the mandatory payrolling headline dominates, three quieter changes took effect on 6 April 2026 that many employers have not yet absorbed into their policies or payroll processes. All three extend existing exemptions to cover reimbursements — resolving a long-standing inconsistency where directly provided benefits were tax-free but employer reimbursements were not.
Home working equipment reimbursements. A new exemption under Section 316ZA ITEPA 2003 makes it tax and NIC free for employers to reimburse employees for home working equipment — desks, monitors, office chairs and the like. Previously, directly provided equipment was exempt but reimbursements were taxable. That anomaly is corrected. Note separately that HMRC’s flat-rate £6 per week homeworking relief for employees making direct claims has been abolished from April 2026, though employers can still pay up to £6 per week tax-free for additional household costs under a formal homeworking agreement.
Eye tests and corrective appliances. The existing exemption for employer-arranged eye tests and corrective appliances needed for display screen equipment work has been extended to cover employer reimbursements. The HMRC Employment Income Manual at EIM21874 has been updated accordingly. Review your expenses policy: if employees are currently submitting eye test receipts and being taxed on the reimbursement, that treatment needs correcting.
Flu vaccinations. A new income tax exemption covers employer-provided or reimbursed flu vaccinations from 6 April 2026, whether arranged directly, paid to the provider, or reimbursed to the employee. The exemption does not apply where the vaccination is delivered through salary sacrifice. This is a genuinely new exemption — flu jabs had no specific statutory cover previously and were dealt with through HMRC’s staff welfare guidance, which was inconsistently applied.
The CIOT has welcomed these extensions while calling for them to go further. The practical point for CFOs is straightforward: review your benefits and expenses policies against these three changes, update your payroll treatment, and ensure your HR and finance teams are aligned. If your P11Ds for 2025/26 have already been filed incorrectly, consider whether amendments are warranted.
The Salary Sacrifice Pension Cap: Three Years to Restructure
The National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026. It introduces a £2,000 annual cap on NIC savings from salary sacrifice pension arrangements, effective from 6 April 2029. Above that cap, both employer and employee NICs apply to pension contributions made via salary sacrifice.
The numbers are significant. The OBR estimated the measure will raise £4.7 billion in 2029/30 — one of the largest revenue-raising measures from the Autumn Budget 2025. The government’s stated rationale was that NIC relief through salary sacrifice disproportionately benefited higher earners. The House of Lords attempted to raise the cap to £5,000 and introduce carve-outs for smaller businesses and charities. Both amendments were rejected. The £2,000 cap applies universally.
The practical impact falls hardest on mid-range earners contributing between roughly £25,000 and £50,000 to pensions via salary sacrifice — those earning £45,000 to £50,000 are expected to see the largest absolute reduction in take-home pay. Higher earners above the upper earnings limit face the 2% additional rate on the excess, which is a materially lower hit. Employers face 15% employer NIC on contributions above the cap per employee.
Three years sounds comfortable. It is not, for organisations running large pension salary sacrifice schemes. The strategic questions to address now: How much of your pension contribution flow runs through salary sacrifice? Which employee cohorts are most exposed? Does your reward strategy need rebalancing towards direct employer contributions, which remain free of NICs? And do your employment contracts or flexible benefit elections need to be reviewed?
Payroll systems will also need updating — approximately 290,000 UK employers operate salary sacrifice pension schemes, and the software changes required to apply the cap correctly are not trivial. Engaging your payroll provider and pension administrator now, rather than in 2028, is the sensible course.
The Employer NIC Baseline: Still Elevated
Sitting behind all of these specific changes is the elevated employer NIC baseline that has been in place since April 2025 and continues into 2026/27 unchanged: a 15% rate on earnings above a £5,000 secondary threshold. The rate increased from 13.8% and the threshold fell from £9,100 in one move, materially increasing the cost of lower-paid and part-time workers in particular.
The Employment Allowance has increased to £10,500 (from £5,000) and the former £100,000 NIC liability eligibility cap has been removed, giving relief to a wider set of employers. For most SMEs, this meaningfully offsets the rate increase. For mid-sized and large employers with substantial payrolls, the elevated rate is simply the new cost of employment and the focus should be on legitimate NIC optimisation — remuneration structuring, benefit design and the three new exemptions noted above.
CFO Action Points
- Mandatory payrolling — start now, not in Autumn 2026. Assign project ownership across payroll, HR, tax and finance. Assess system capability. Begin benefit data cleanse. Model Class 1A NIC cash flow impact for 2027/28.
- Review P11D process for 2026/27. This is your final full P11D cycle. Use it to identify data quality gaps before mandatory payrolling begins. The deadline is 6 July 2027.
- Check benefit exemptions for 2026/27 and prior years. Have you updated your expenses policy to reflect the new home working equipment, eye test and flu vaccination exemptions? If employees were taxed on these in 2025/26, consider whether P11D corrections are appropriate.
- Salary sacrifice pension strategy review. Quantify employer and employee NIC exposure above the £2,000 cap from April 2029. Model restructuring options. Engage pension administrator and payroll provider. This is a reward strategy decision, not a payroll admin task.
- Director remuneration review. The £5,000 to £12,570 salary band continues to be the optimal NIC-efficient range — above the secondary threshold but below the primary threshold. Worth validating given the changed NIC landscape.
- Employment Allowance. Confirm your payroll system is claiming the £10,500 allowance correctly, particularly if your business structure has changed since eligibility rules were updated.
Employment tax is not a year-end exercise. Three significant changes — mandatory payrolling, new benefit exemptions and the salary sacrifice pension cap — are all live or incoming. The CFOs who use 2026 to build the right processes, fix the data and engage their advisers will have a straightforward 2027 transition. Those who treat the April 2027 mandate as next year’s problem will not.