Payroll

What is Benefit in Kind (BIK)?

A Benefit in Kind is a non-cash perk from your employer (like a company car or health insurance) that's taxed as if it were salary.

Current Rate (2025/26)

Varies by benefit type

Example

Company provides £500/month health insurance. You pay tax on £6,000 'income' even though you never received cash.

Key Dates

Reported on P11D form by 6 July after tax year end

How Benefit in Kind (BIK) Works in Practice

A Benefit in Kind (BIK) is any non-cash benefit that an employer provides to an employee or director that has a monetary value. HMRC treats these benefits as part of your taxable income, meaning you pay Income Tax on their value even though you never received cash. The company also pays Class 1A National Insurance at 15% on the taxable value of benefits provided.

Common BIK examples for company directors include: private health insurance, company cars, fuel for private use, loans from the company above £10,000, accommodation provided by the company, gym memberships, and personal use of company assets. Each type of benefit has its own rules for calculating the taxable value, which can be complex, particularly for company cars where the BIK depends on the list price, CO2 emissions, and fuel type.

Some benefits are tax-exempt and do not need to be reported. These include: employer pension contributions (within annual allowance), death in service life insurance, the first £6 per day of meal allowances when traveling, workplace parking, one mobile phone per employee, eye tests for VDU users, and trivial benefits under £50 (capped at £300 per year for directors). Knowing which benefits are exempt and which are taxable is important for efficient remuneration planning.

For director-shareholders of small companies, BIK planning is an integral part of overall tax strategy. Some benefits (like employer pension contributions) are both Corporation Tax deductible and tax-free to the recipient, making them extremely efficient. Others (like company cars with petrol engines) can create a surprisingly large tax bill relative to the actual benefit received.

Step by Step

The employer reports all taxable benefits on form P11D for each employee or director by 6 July after the end of the tax year. A P11D(b) form is also submitted showing the total Class 1A NI due on all benefits. The Class 1A NI must be paid by 22 July (19 July if paying by post).

The employee's tax code is adjusted by HMRC to collect the Income Tax on the benefit through PAYE for the following year. For example, if you provide £6,000 of health insurance, HMRC reduces the employee's personal allowance by £6,000 in the following year's tax code, so they pay tax on it through their regular salary deductions.

Alternatively, employers can payroll benefits (register to process them through payroll) which eliminates the need to file P11Ds for those specific benefits. The tax is deducted in real time through PAYE. This is becoming more popular as it simplifies administration and gives employees a clearer picture of their total tax position each month. You register to payroll benefits before the start of the tax year through HMRC's online service.

Practical Tips

Before providing any non-cash benefit, calculate the BIK tax cost for both you (as the recipient) and the company (Class 1A NI) to ensure the benefit is actually worth having
Consider an electric vehicle through the company if you need a car, as the 2% BIK rate makes it significantly cheaper than a petrol or diesel alternative
Register to payroll benefits through HMRC to simplify administration and avoid the annual P11D filing burden
Maximise employer pension contributions before providing taxable benefits, as pensions are the most tax-efficient way to extract value from the company

Common Mistakes to Avoid

Not reporting BIK at all, assuming that because the director controls the company they do not need to follow the same rules as any other employer, which leads to penalties during an HMRC compliance check
Providing a company car without calculating the BIK in advance, only to discover the tax charge is disproportionate to the benefit, especially for petrol or diesel cars with high emissions
Missing the P11D filing deadline of 6 July, which triggers automatic penalties of £100 per 50 employees for each month the return is late
Not considering tax-exempt alternatives like employer pension contributions, trivial benefits, or salary sacrifice arrangements that could provide similar benefits without the BIK tax charge

Frequently Asked Questions

What are the most tax-efficient benefits I can provide?

Employer pension contributions are the most tax-efficient benefit, as they are Corporation Tax deductible, exempt from NI, and tax-free to the employee within the annual allowance. Other efficient benefits include cycle-to-work schemes, electric vehicle salary sacrifice (very low BIK rate), death in service insurance, and trivial benefits under £50.

How is a company car BIK calculated?

The BIK is calculated as a percentage of the car's list price (P11D value), with the percentage determined by CO2 emissions and fuel type. For 2025/26, electric vehicles have a 2% BIK rate, while petrol cars can be up to 37%. A £40,000 electric car creates a BIK of £800, while the same value petrol car could create a BIK of £14,800.

When do I report benefits in kind?

Benefits are reported on form P11D, due by 6 July after the end of the tax year. The accompanying P11D(b) and Class 1A NI payment are due by 22 July. Alternatively, you can register to payroll benefits, which removes the P11D obligation for those benefits and handles the tax in real time.

Do trivial benefits need to be reported?

No. Benefits that cost less than £50 each, are not cash or a cash voucher, are not a reward for work, and are not in the terms of the employment contract, qualify as trivial benefits and do not need to be reported. For directors and their families, there is an annual cap of £300 on trivial benefits.

Does the company pay tax on benefits in kind?

The company pays Class 1A National Insurance at 15% on the taxable value of all benefits provided. The cost of providing the benefit is usually also Corporation Tax deductible. The employee pays Income Tax on the benefit value through their tax code or payrolled benefits.

Source: HMRC EIM20000 - Employment Income Manual: Benefits in Kind

Related Terms

P11D

A P11D is a form employers use to report benefits and expenses provided to employees that aren't included in payroll.

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