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PayrollUpdated 2026-02-12

What is a Benefit in Kind (BIK)?

Quick Answer

A Benefit in Kind is a non-cash perk provided by your company, like a company car or private medical insurance. You pay income tax on the value, and your company pays Class 1A NI at 15%.

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Detailed Explanation

Benefits in Kind explained

A Benefit in Kind (BIK) is any non-cash benefit that a company provides to its employees or directors. HMRC treats these as taxable income because they have monetary value.

Common Benefits in Kind

| Benefit | How it's valued | |---|---| | Company car | List price x CO2 percentage | | Private medical insurance | Premium cost | | Interest-free loans (over £10,000) | Official rate of interest (2.25%) | | Accommodation | Annual rental value or market rent | | Gym membership | Cost to company | | School fees | Cost to company | | Assets for personal use | 20% of market value per year |

How BIK tax works

  • The company provides a benefit worth £X
  • The employee/director pays Income Tax on £X at their marginal rate
  • The company pays Class 1A National Insurance at **15%** on £X
  • Benefits are reported on form **P11D** by 6 July after the tax year

Example: Private medical insurance

Policy costs the company £1,200/year: - Director (40% taxpayer) pays: £1,200 x 40% = £480 tax - Company pays: £1,200 x 15% = £180 Class 1A NI - Total tax cost: £660 for a £1,200 benefit - Company can deduct the £1,200 premium as a business expense

Example: Company car

Electric car, list price £40,000, BIK rate 2%: - BIK value: £40,000 x 2% = £800 - Director (40% taxpayer) pays: £800 x 40% = £320/year - Company pays: £800 x 15% = £120 Class 1A NI - Incredibly tax-efficient for electric vehicles

Petrol car, list price £30,000, 130g/km CO2, BIK rate 33%: - BIK value: £30,000 x 33% = £9,900 - Director (40% taxpayer) pays: £9,900 x 40% = £3,960/year - Company pays: £9,900 x 15% = £1,485 Class 1A NI - Much less efficient for high-emission vehicles

Exempt benefits (no tax)

Some benefits are specifically exempt: - Mobile phone

One phone per employee (company contract) - **Trivial benefits

Payrolling benefits

Instead of reporting on P11D, companies can opt to payroll benefits

- Tax collected through PAYE each month - No P11D needed for payrolled benefits - Must register with HMRC before the tax year starts - Simpler for both employer and employee

Reporting obligations

- P11D

Due 6 July after tax year (e.g., 6 July 2026 for 2025/26) - **P11D(b)

Tax planning with BIK

Some benefits are much more tax-efficient than equivalent salary: - Electric company car: Tiny BIK (2%) vs full tax on salary - Pension contributions: No BIK at all - Trivial benefits: £300/year completely tax-free - Cycle to work: No BIK on qualifying schemes

Source: HMRC Benefits in Kind Guidance

Real-World Examples

Company Car Benefit

Sarah, a director, uses a company car with a list price of £30,000 and a CO2 emission figure that puts it in the 25% tax bracket. Her BIK is £7,500 (25% of £30,000), which is added to her taxable income, and the company pays Class 1A NI of £1,125 (15% of £7,500).

Private Medical Insurance for Director

Mark's company pays £2,000 annually for his private medical insurance. This £2,000 is a BIK. He'll pay income tax on it, and his company will pay £300 (15% of £2,000) in Class 1A National Insurance.

Company-Provided Accommodation

Your company owns a flat used by an employee. The annual market rent is £12,000. This £12,000 is a BIK on which the employee is taxed, and the company pays Class 1A NI of £1,800.

Common Mistakes to Avoid

  • Forgetting to report Benefits in Kind on a P11D form is a common error, leading to penalties.
  • Incorrectly valuing a company car by using the wrong CO2 emissions figure can result in underpayment of tax and NI.
  • Assuming a benefit is exempt when it's actually taxable, such as certain types of employee training, can lead to unexpected tax liabilities.
  • Failing to understand the specific rules for taxing living accommodation provided by the company can cause errors in BIK calculations.

If I repay my company for the Benefit in Kind, do I still pay tax?

If you repay your company for the full cost of the benefit before 6th July following the tax year, the BIK charge can be reduced or eliminated. Keep records of the repayment for HMRC.

How does the company report and pay Class 1A National Insurance on Benefits in Kind?

The company reports the BIK on form P11D at the end of the tax year (deadline 6th July) and pays the Class 1A NI liability by the 22nd of July (or 19th if paying by post) following the tax year end.

Are all employee benefits taxable as Benefits in Kind?

No, some benefits are exempt from tax, such as trivial benefits (costing £50 or less, not cash or a cash voucher, and not a reward for performance) and employer contributions to a registered pension scheme.

What happens if I don't submit a P11D form?

Failure to submit a P11D form by the deadline (6th July) can result in penalties from HMRC. The size of the penalty depends on the severity and duration of the non-compliance.

Practical Tips

  • Keep detailed records of all benefits provided to employees and directors, including purchase invoices, lease agreements, and usage logs, to accurately calculate the BIK value.
  • Use HMRC's online calculator tools for company car benefit valuations to ensure accurate calculations based on CO2 emissions and list price, reducing the risk of errors.
  • Review HMRC's guidance on Benefits in Kind regularly, as rules and tax rates can change each tax year. This will help you stay compliant.
  • Consider implementing a benefits policy clearly outlining which benefits are provided and how they are valued to ensure transparency and consistency for all employees.

Related Questions

What is a P11D?

A P11D is a form reporting employee benefits and expenses to HMRC. Directors must declare benefits like company cars, private medical insurance, and interest-free loans over £10,000.

Can I buy a car through my company?

Yes, but if you use it personally, you'll pay Benefit in Kind (BIK) tax based on the car's list price and CO2 emissions. Electric cars have the lowest BIK (2% in 2024/25).

What expenses can I claim through my company?

You can claim expenses that are 'wholly and exclusively' for business purposes. This includes travel, equipment, professional subscriptions, training, marketing, and business insurance.

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