Many companies offer additional perks outside of the basic salary. These include company cars, medical insurance, or even gym memberships, and are known as Benefits in Kind (BIK).
But as with most things in life, specific tax rules apply.
Whether you’re an employee or an employer, our blog will help you understand how Benefits in Kind work, what’s actually taxable, and how to report them so that you get it right.
What are Benefits in Kind?
Benefits in Kind (sometimes called fringe benefits or non-cash benefits) are the perks given on top of an employee’s salary, such as a company car for personal use or private health insurance.
Some Benefits in Kind are tax-free, but many are taxable. This means they affect both the employee’s and employer’s National Insurance contributions and tax obligations.
How does a Benefit in Kind work?
HMRC treats Benefits in Kind as part of an employee’s taxable income. Employers need to report it, and depending on the nature of the benefit, employees may need to pay tax on it either through an adjusted tax code or a P11D.
Some BiKs also attract employer NICs at the Class 1A rate (increasing payroll costs).
Common Benefits in Kind
Some common employment benefits you might find include:
- Company cars and free or subsidised fuel for private use
- Private medical insurance
- Company credit cards used for personal purchases
- Interest-free or low-interest loans over £10,000
- Gym memberships, mobile phone contracts, and meals
Exempt employee benefits
Some non-taxable benefits are exempt under specific tax rules.
These include:
- One mobile phone per employee (if the contract is in the employer’s name)
- Trivial benefits (like birthday gifts or meals under £50, meeting certain conditions)
- Employer contributions to workplace pensions
- Free or subsidised meals in the workplace canteen
- Incidental overnight expenses for business travel
- Workplace parking spaces
You may still need to report these benefits, but they won’t usually lead to a tax bill for the employee or additional costs for the business.
Why are Benefits in Kind taxable?
HMRC views BiKs as part of an employee’s total earnings. If someone is receiving something of monetary value (whether a company car or private healthcare), it’s effectively a form of payment. This means the taxable value of the benefit is subject to Income Tax and NI contributions in HMRC’s eyes.
It helps keep taxes fair and funds public services.
Tax implications for the employer
As the employer, you have responsibilities to:
- Calculate the taxable amount or cash equivalent of each benefit
- Report benefits to HMRC using P11D and P11D(b) forms or ‘payrolling benefits’
- Pay Class 1A National Insurance contributions on relevant taxable BiKs
- Keep clear records of all benefits provided
You should also let your employees know if and how the Benefit in Kind can affect their taxes.
Tax implications for the employee
Employees may:
- Have their tax code adjusted to reflect the value of BiKs
- Pay more Income Tax if they receive high-value or multiple benefits
- See the BIKs on their payslip or Self-Assessment tax return (if applicable)
How to report employee benefits to avoid penalties
There are two ways in which Benefits in Kind are taxed.
1) Payrolling benefits
Employers can choose to include the taxable benefits in the employee’s monthly payroll. This means the employer will need to calculate the additional income (which is the taxable value of the Benefit in Kind) and adjust the employee’s salary to reflect it. Tax is then collected through PAYE tax when the employee is paid.
Payrolling benefits will become mandatory for all employers in the 2026/2027 tax year.
2) P11D Form
The alternative option is reporting the Benefits in Kind for each employee through a P11D form before 6 July for the relevant tax year. HMRC then collects the tax by adjusting the employee’s tax code.
If you provide multiple taxable benefits, you can apply for a PAYE Settlement Agreement (PSA) and make just one annual payment to cover tax and NI for ‘minor, irregular, or impracticable’ expenses.
Looking for more clarification? Get in touch with Ascott Blake
The tax implications of employee Benefits in Kind can be challenging, especially if you have a growing team or are thinking about expanding your compensation package.
Why not take a step back and let us take the lead?
At Ascott Blake, we offer specialist payroll services and HR consultancy that will support your business as it grows. We’ll help simplify your reporting process for tax and employee benefits, and provide advice on what you can do to continue building an engaged and thriving workforce.
Call us today on 01279 797 222 or complete our contact form to find out what we can do for you.
Frequently asked questions about BIKs
Can an employee refuse a taxable benefit?
Employees should have the right to opt out of taxable benefits, especially if accepting them would lead to a higher tax bill.
How do employees pay tax on Benefits in Kind?
Employees pay tax on BIKs directly through their salary (similar to how Income Tax and NICs are deducted) or by an adjustment to their tax code.
HMRC has a helpful guide for employees who incur tax on benefits.
What are trivial benefits?
These are small perks worth under £50, like a bottle of wine for a special occasion or a birthday gift. If they meet HMRC’s conditions, they are tax-free.
How do I know if a benefit is taxable?
Tax changes all the time. Check HMRC’s guidance online for the most up-to-date information on BIK tax. Or contact us, and we’ll gladly guide you through taxable Benefits in Kind.
Is a Benefit in Kind the same as salary sacrifice?
They both reward employees outside of their salary, but not in the same way. A Benefit in Kind is an additional perk on top of an employee’s salary, while salary sacrifice is where an employee gives up some of their salary in return for a non-cash benefit.
