Mandatory Payrolling for Company Cars: What Single Directors Need to Know for 2027/28

If you run a one-person limited company, you likely structure your income around the tax-efficient baseline salary of £12,570 per year to utilise your Personal Allowance and National Insurance thresholds. If you also run a company car through the business with personal access, big changes are around the corner.

The days of submitting an annual P11D form and paying tax and Employer’s Class 1A National Insurance Contributions (NICs) months in arrears are coming to an end. Here is what this shift to real-time tax means for your monthly income, company cash flow, and tax planning.

The Big Change: Real-Time Monthly Payroll (RTI)

Under the current system, your company car benefit is reported on a P11D after the end of the tax year. Your Personal Tax Allowance is then adjusted via your tax code in subsequent years, or settled via Self Assessment. Meanwhile, your company pays the Class 1A NIC bill in a single lump sum in July following the end of the tax year.

From April 2027 (Phase 1 of HMRC’s mandatory payrolling rollout), company cars and car fuel benefits must be processed directly through your monthly payroll via Real Time Information (RTI):

1. Monthly Personal Income Tax: The annual cash equivalent of your car benefit will be divided into 12 equal parts and added to your monthly taxable gross pay.
2. Monthly Class 1A Employer’s NIC: Your limited company will calculate and pay Class 1A NICs on a month-by-month basis alongside your regular PAYE submission, rather than holding onto the cash until July.

Why This Hits Low-Salary Directors Harder

If you draw a director’s salary of £12,570, you normally pay £0 in personal Income Tax and Employee NICs on that salary.

However, adding a company car benefit to your monthly RTI payroll increases your monthly taxable income:

• If you drive a high-emission petrol or diesel car: A £30,000 petrol car with a 30% BiK rating creates a taxable benefit of £9,000 per year. Processed monthly, £750 of benefit is added to your £1,047.50 monthly salary. Because your total monthly taxable pay now exceeds your tax-free allowance, PAYE will automatically deduct Income Tax directly from your net take-home salary every month.
• If you drive an Electric Vehicle (EV): Low BiK percentages mean the monthly taxable value added to your payroll stays small, keeping your personal monthly tax liability negligible while still securing corporate tax relief for the business.

How to Prepare Your Business

• Review Your Cash Flow: Expect your company’s monthly PAYE bill to rise as Class 1A NICs are collected in real time throughout the tax year.
• Check Your Payroll Software: Ensure your payroll setup or provider is equipped to handle Real Time Information benefit reporting ahead of the April 2027 deadline.
• Re-evaluate High-Emission Vehicles: If you are running a petrol or diesel car through the business, the immediate deduction of tax from your monthly salary makes personal ownership (charging the business 55p/mile for business travel) an even clearer winner.

Need help reviewing your strategy as a director or you can run the calculations for your next vehicle here:-    HMRC's Car Benefit Calculator

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