Benefits In Kind (BIKs) are any perks or services an employer provides to an employee or director that they do not include in their regular salary. The employer provides these extras to enhance the employee experience or make their job easier.
Although employers do not pay them in cash, BIKs still carry value and are part of an employee’s taxable income. Common examples include:
- Company vehicles
- Private medical insurance
- Discounted or free gym memberships
- Childcare support
- Flexible workspace access
- Home office equipment
What Counts as a Benefit In Kind?
Just about anything of value provided by an employer can be a Benefit In Kind. The question is whether the benefit is for personal use. If it is not “Wholly and Exclusively” required for the job, it is likely taxable.
Taxable examples include:
- Company cars used for personal travel
- Private healthcare plans
- Interest-free or low-interest loans over £10,000
- School fees
- Holiday accommodation
- Non-business travel or meals
Tax-free examples include:
- Business-related travel expenses
- Employer pension contributions
- Staff canteen meals
- Annual staff parties
- Childcare through registered nurseries
Are Benefits in Kind Taxable?
Yes, in most situations.
While employers do not pay Benefits In Kind in cash, they still increase an employee’s overall pay package. To ensure fair taxation, both employees and employers usually share the tax burden.
- Employees may pay Income Tax based on their tax band
- Employers are responsible for paying Class 1A National Insurance on the value of the benefits
Still, some BIKs are completely tax-free or come with specific reliefs.
Calculating Benefits In Kind
Each benefit type has its own method of tax calculation, often defined by HMRC guidance. However, if the employee contributes toward the cost of the benefit, this reduces the taxable amount.
Company Cars – Read more
The taxable value depends on:
- The car’s list price
- Fuel type
- CO2 emissions
- Whether it’s available all year
Electric and hybrid cars usually receive lower rates due to lower emissions.
Private Medical Insurance
The taxable value equals the cost to the employer of providing the cover.
Employer-Provided Accommodation
HMRC usually tax this based on market rental value. Additional costs like maintenance may also apply.
How to Report Benefits In Kind
Employers must report Benefits In Kind and ensure they pay taxes correctly. There are 2 ways to do this:
1. Payrolling Benefits – Read more
Report the benefit value through your payroll system. HMRC collects the tax monthly through PAYE, just like wages.
2. Using P11D and P11D(b) Forms – Read more
If you do not payroll benefits, you must:
- Submit a P11D form for each employee by 6th July following the tax year
- Submit a P11D(b) form to declare the Class 1A National Insurance owed
Important – From April 2026, employers must report most BIKs via payroll. Only accommodation and employment-related loans will still require P11D forms.
Are Benefits in Kind Tax-Deductible for Employers?
Yes.
Most costs of providing Benefits In Kind are legitimate business expenses and can reduce Corporation Tax liability. Tax-deductible examples include:
- Health insurance premiums
- Lease costs for company vehicles
- Admin costs related to benefits
- Interest on employee loans
However, tax deductibility may vary depending on the benefit and the current year’s rules.
Electric Vehicles and Benefit In Kind Savings
Electric cars offer major savings on Benefit In Kind tax. In 2024/25, the BIK rate for electric vehicles (EVs) is just 2%. This increases to 3% in 2025/26 and rises by 1% yearly until 2028. Despite this, EVs remain significantly more tax-efficient than petrol or diesel options.
Example Comparison:
| Factor | Petrol Car (120g/km) | Electric Car (0g/km) |
|---|---|---|
| P11D Value | £30,000 | £40,000 |
| BIK Rate (2025/26) | 29% | 3% |
| Taxable Value | £8,700 | £1,200 |
| Tax at 20% | £1,740/year | £240/year |
This shows a tax saving of over £1,500 per year for 20% taxpayers.
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