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Understanding Benefit in Kind (BIK) is essential for both employers and employees in the UK. A benefit in kind refers to any non-cash benefit provided to an employee by their employer, which has a monetary value and is considered taxable by HMRC.
From company cars and private medical insurance to interest-free loans, BIKs can come in many forms and often have tax implications that are easy to overlook.
This article breaks down everything you need to know about benefit in kind, helping you stay compliant and informed when navigating the complexities of workplace perks and their tax treatment.
A Benefit in Kind (BIK) is any benefit or perk provided to an employee or director that is not included in their salary but still holds a taxable value. Commonly issued by employers as part of a remuneration package, BIKs can range from company vehicles and health insurance to interest-free loans and accommodation. While they are not paid in cash, HMRC treats many of these perks as taxable income.
The key point to understand is that a benefit in kind is a non-cash benefit with a monetary value, and therefore it can affect both income tax and National Insurance contributions. Employers are typically responsible for reporting BIKs to HMRC via a P11D form, while employees may see their tax codes adjusted to reflect the taxable value of the benefits received.
"Understanding the tax treatment of Benefits in Kind is crucial—not just for compliance, but for avoiding unexpected costs. A well-managed BIK strategy can create savings for employers and help employees make the most of non-cash perks without overpaying tax."
- Matt McConnell, Director at Pulse Accountants
In the UK, Benefits in Kind (BIKs) are non-cash perks provided by an employer that are considered taxable income by HMRC. While these benefits are not added to your payslip as salary, they hold a monetary value and can result in additional tax liabilities for the employee and reporting responsibilities for the employer.
Employers must declare most BIKs using form P11D, which outlines the value of benefits given to each employee or director. Some benefits, however, can be processed through the payrolling benefits scheme, allowing tax to be deducted via PAYE throughout the year.
The way a benefit is taxed depends on what type of benefit is provided and its assigned value by HMRC. Factors like list price, CO₂ emissions, and private use (in the case of company cars) can affect how much tax is due.
There are several types of Benefits in Kind that employers in the UK commonly offer as part of a total compensation package. These non-cash perks often provide real value to employees but can come with tax implications.
Here are some of the most frequently seen examples of taxable BIKs:
| Benefit Type | Taxable? | Notes |
|---|---|---|
| Company car | Yes | Tax depends on CO₂ emissions and list price |
| Private medical insurance | Yes | Based on employer’s policy cost |
| Employer-provided accommodation | Yes | Subject to complex valuation rules |
| Fuel for personal use | Yes | Flat-rate fuel benefit applies |
| Second phone/device | Yes | First phone may be exempt |
| Interest-free loan over £10,000 | Yes | Taxed on saved interest |
| Vouchers or goods | Yes | Treated as income |
| Personal travel/holidays | Yes | Fully taxable |
| Event tickets | Often | Depends on value and reason (e.g. reward vs. gift) |
These examples are subject to specific tax rules and values depending on their type and usage. Some may fall under tax-free exemptions if certain conditions are met, while others will require declaration to HMRC. Each benefit should be assessed carefully to determine its tax treatment.
Yes, a company car is one of the most well-known and commonly provided Benefits in Kind in the UK. If an employee is given a vehicle by their employer and they use it for personal journeys—including commuting—HMRC classifies this as a taxable benefit.
The taxable value of a company car BIK is calculated based on several factors:
The car’s list price (not what the employer paid)
The CO₂ emissions and fuel type
The availability of the vehicle for private use
Cars with lower emissions—such as electric vehicles (EVs) or hybrids—generally have much lower BIK rates. In some cases, zero-emission vehicles attract minimal or no BIK tax, making them attractive from a tax planning perspective.
Employers are responsible for reporting company cars on the employee’s P11D form, or by registering for payrolling benefits. Employees will then pay additional income tax based on the car’s BIK value and their tax band. Always check HMRC’s latest company car tax tables to assess your liability.
Company car benefit was reported for 840,000 individuals in the 2023–24 tax year—up 80,000 on the previous year—showing a renewed increase in employer investment in non-cash rewards, after several years of decline in BIK uptake post-2016.
- GOV.UK
Benefit in Kind tax is calculated based on the cash equivalent value of the benefit provided. This value is set according to HMRC rules and varies depending on the type of benefit.
For example, a company car's BIK value is determined by its list price, CO₂ emissions, and fuel type. In contrast, private medical insurance is taxed based on the cost of the policy to the employer. Other benefits, like interest-free loans, are valued by comparing interest saved to HMRC’s official interest rate.
Once the taxable value of the benefit is established, it’s added to the employee’s income for the year. The employee then pays income tax on this amount according to their tax band—typically 20%, 40%, or 45%.
Employers must report the benefit to HMRC using a P11D form unless it's processed through the payroll system. They may also be liable for Class 1A National Insurance contributions at 13.8% on the value of the benefit.
| Type of Benefit | Basis of BIK Value |
|---|---|
| Company car | List price × BIK rate (CO₂ dependent) |
| Medical insurance | Cost to employer |
| Loan over £10,000 | Interest saved vs. HMRC official rate |
| Accommodation | Annual value + additional charges |
| Fuel card (private use) | Fixed multiplier value |
In most cases, it is the employee or director who pays income tax on a Benefit in Kind. The taxable value of the benefit is added to their gross income and taxed according to their individual tax band—basic, higher, or additional rate.
Although the tax is paid by the employee, the employer has reporting responsibilities. They must declare the benefit using a P11D form or through payrolling benefits, depending on how they choose to manage their obligations. Employers are also responsible for paying Class 1A National Insurance contributions on the value of the BIK.
It’s important to note that not all benefits are taxable. Some fall under exemptions, but where tax is due, HMRC may adjust the employee’s tax code to collect it gradually throughout the tax year.
Accurate reporting and timely communication between employer and employee are essential to ensure the right tax is paid and to avoid any penalties for non-compliance.
Electric cars currently attract the lowest Benefit in Kind (BIK) rates available in the UK. For the 2025/26 tax year, the BIK rate for fully electric vehicles remains at 2%, which makes them an extremely tax-efficient choice for both employers and employees when compared to petrol or diesel models.
This low rate applies to cars that produce zero CO₂ emissions and are made available for private use, such as commuting. The BIK value is calculated using the car’s list price (not purchase price) multiplied by the BIK rate. The resulting value is then taxed based on the employee’s income tax band (20%, 40%, or 45%).
Employers must still report electric cars on a P11D form or through payrolling benefits. They are also liable to pay Class 1A National Insurance contributions on the taxable value. As the Government promotes greener travel, electric cars will continue to be an attractive BIK option, especially when combined with salary sacrifice schemes or corporate fleet arrangements.
Yes, fuel cards provided by an employer are typically classed as a Benefit in Kind when they are used to cover private mileage. This includes journeys to and from work or any travel unrelated to business. If the card is used exclusively for business purposes, and accurate mileage records are maintained, it may not be considered a taxable benefit.
When fuel is provided for private use, HMRC applies a standard fuel benefit charge, which is calculated using a fixed multiplier. This value must be reported by the employer on the employee’s P11D form, and income tax will be due from the employee based on their tax band. The employer will also be responsible for paying Class 1A National Insurance contributions on the taxable value.
Where fuel cards are used only for business travel, robust evidence and mileage logs are essential to avoid any misunderstanding with HMRC. Without proper documentation, the full value of the fuel card may be treated as a taxable benefit by default. As with all BIKs, clarity and accurate reporting are key to staying compliant.
Although Benefits in Kind (BIKs) are non-cash perks, they can still affect how much tax you pay—and in some cases, your monthly payslip. If your employer uses payrolling benefits, the value of the BIK is added to your taxable income each pay period. While you won’t receive the benefit in cash, your tax deduction will increase to reflect its value.
Alternatively, if BIKs are reported via a P11D form, the benefit won’t appear directly on your payslip. Instead, HMRC will adjust your tax code, reducing your tax-free personal allowance to collect the tax owed over the year. This results in a lower take-home pay but won’t itemise the benefit on your payslip.
Whether payrolled or reported post-year-end, BIKs can impact your net income and tax position. It's essential to understand how your employer handles BIKs, especially if you receive perks such as a company car, private health cover, or fuel allowance. Reviewing your tax code or seeking professional advice can help clarify your position.
Yes, company directors are subject to the same Benefit in Kind (BIK) tax rules as employees in the UK. Any non-cash perks provided by the business for personal use—such as company cars, accommodation, or medical insurance—are considered taxable benefits and must be reported to HMRC.
Directors often receive a wider range of benefits, particularly in small businesses where they may have greater control over company resources. Regardless of company size, if the benefit has a monetary value and provides personal advantage, it will likely attract BIK tax.
The employer (or company itself) is required to report these benefits using the P11D form, and directors must pay income tax on the taxable value. The company will also incur Class 1A National Insurance contributions.
While there are certain exemptions—such as mobile phones or trivial benefits under £50—these only apply if specific conditions are met. Directors should take particular care to ensure BIKs are accurately recorded and declared, as failing to do so can result in HMRC penalties or unexpected tax liabilities.
A P11D is a form used by UK employers to report Benefits in Kind (BIKs) provided to employees and directors during the tax year. It is submitted to HMRC and outlines any non-cash benefits that may be subject to income tax and National Insurance.
Each P11D form is completed per employee and includes details such as company cars, medical insurance, loans, and other personal-use benefits. The employer must also submit a P11D(b) form to declare the total amount of Class 1A National Insurance contributions due on all reported BIKs.
The information on the P11D is used by HMRC to adjust the employee’s tax code, ensuring the correct amount of tax is collected. Alternatively, employers can opt to payroll benefits, meaning the tax is collected through PAYE without the need for a P11D.
Even though the P11D doesn’t affect salary directly, it plays a crucial role in how BIKs are taxed. Employers must submit P11D forms by 6 July following the end of the tax year, and failure to comply may result in penalties or interest charges.
In most cases, employees do not need to report Benefits in Kind (BIKs) themselves—this is the responsibility of the employer. Employers are required to declare any taxable non-cash benefits provided to employees or directors using either a P11D form or through the payrolling of benefits scheme.
That said, it’s important for employees to understand what BIKs they’re receiving, especially as HMRC may adjust their tax code to collect additional income tax. This can reduce their personal allowance and impact take-home pay, even if the benefit doesn’t appear on their payslip.
There are rare instances where employees might need to report BIKs themselves—for example, if they are self-employed or receive benefits not declared by the employer. However, for most PAYE employees, the reporting burden lies with the company.
Employees are advised to check their P11D forms or tax codes annually to ensure all benefits are accurately reflected. If there are discrepancies, contacting HMRC or speaking with a qualified tax advisor can help resolve the issue before it leads to underpayment or penalties.
Yes, not all Benefits in Kind are taxable. HMRC allows several tax-free benefits as long as certain conditions are met. These can be provided by employers without triggering income tax or National Insurance liabilities.
Common examples of tax-free BIKs include:
One mobile phone per employee, if owned by the employer
Workplace parking for cars, bicycles or motorcycles
Employer pension contributions
Eye tests or glasses required for screen use
Trivial benefits (under £50 in value and not cash or cash vouchers)
These benefits are exempt from tax if provided within HMRC guidelines. It’s essential that employers structure them correctly to avoid accidental tax liabilities.
While many Benefits in Kind are taxable, knowing which ones are exempt can support more efficient employee benefits planning. Employers should keep proper records and ensure conditions are fully met to maintain exemption status.
There are several ways to reduce your Benefit in Kind (BIK) liability legally, by either selecting tax-efficient benefits or structuring them correctly. One common method is opting for low or zero-emission vehicles, such as electric company cars, which attract far lower BIK rates than petrol or diesel models.
Another option is to use salary sacrifice schemes, where employees give up a portion of salary in exchange for a non-cash benefit. When done correctly, this can reduce income tax and National Insurance costs for both parties.
Choosing tax-free benefits—such as pension contributions, mobile phones, or workplace parking—can also lower your overall tax burden. Employers can help by offering benefits that fall under HMRC exemptions.
It’s important to review benefit packages regularly and keep accurate records. Consulting a qualified accountant or tax specialist can help identify strategies to manage and potentially reduce your BIK exposure while staying compliant with HMRC rules.
Failing to report a Benefit in Kind (BIK) can result in penalties, interest charges, and potential tax investigations by HMRC. Employers are legally required to declare taxable benefits either via the P11D form or through payrolling benefits. If a benefit is overlooked or incorrectly valued, it may lead to underpaid tax and National Insurance.
For employees, unreported BIKs can lead to incorrect tax codes or a future tax bill once HMRC identifies the discrepancy. It may also impact eligibility for certain allowances or benefits if income is understated.
HMRC can go back up to four years to correct errors, and longer in cases of deliberate evasion. Penalties depend on the severity and whether the mistake was careless or intentional.
To avoid issues, employers should have clear systems for tracking and reporting all non-cash benefits. Regular reviews and professional advice can help ensure BIKs are fully compliant with tax regulations.
A mobile phone can be provided by an employer without triggering a Benefit in Kind (BIK) charge—if specific conditions are met. HMRC allows one phone per employee to be exempt from tax, as long as the phone contract is in the employer’s name and the device is used mainly for work purposes.
If the employer gives the employee cash to purchase a phone, or if multiple devices are provided, then the value may be treated as a taxable BIK. Similarly, if the phone is used heavily for personal purposes and isn’t clearly employer-owned, HMRC may view it as a benefit.
To remain tax-free, the mobile phone must be:
Owned and paid for directly by the employer
Provided for business use (even if some personal use occurs)
Limited to one per employee
This exemption makes the mobile phone one of the more tax-efficient benefits an employer can offer, provided the setup meets HMRC’s criteria.
Salary sacrifice can play a significant role in how Benefits in Kind (BIKs) are taxed and reported. Under a salary sacrifice arrangement, an employee agrees to give up part of their gross salary in exchange for a non-cash benefit—such as a company car, pension contribution, or cycle-to-work scheme.
The impact on BIK tax depends on the type of benefit provided. Following HMRC’s Optional Remuneration Arrangements (OpRA) rules, most benefits are taxed on the higher of the salary given up or the benefit’s cash value. However, some benefits—like ultra-low emission vehicles and pension contributions—are excluded from these rules, retaining their tax advantages.
Salary sacrifice can help reduce income tax and National Insurance for both employees and employers if implemented correctly. However, it’s important to understand how it interacts with BIK rules to avoid unexpected tax liabilities.
For a detailed breakdown, see our article on Salary Sacrifice vs Benefit in Kind and learn more about how we can support your setup on our Salary Sacrifice Services page.
Gifts and staff entertainment can be considered Benefits in Kind (BIKs) depending on their value and purpose. HMRC has clear rules about when a gift becomes taxable. If an employer gives an employee a cash gift, voucher, or valuable item, this is usually classed as a BIK and must be declared for tax purposes.
However, there are exemptions. Under HMRC’s trivial benefits rule, gifts costing £50 or less, that are not cash or a reward for performance, are not taxable. This could include seasonal gifts like a bottle of wine or a birthday gift card.
Similarly, staff entertainment—such as an annual Christmas party—may be exempt if it meets HMRC’s conditions: costing no more than £150 per person, open to all staff, and held once per year.
If these thresholds are exceeded, the benefit becomes taxable and should be reported via a P11D or PAYE. Keeping clear records is essential for compliance.
Employers have a legal obligation to report Benefits in Kind (BIKs) provided to employees or directors. These non-cash perks must be declared to HMRC either via a P11D form or through payrolling benefits, depending on the method chosen.
The employer must calculate the cash equivalent value of each benefit—such as company cars, private medical insurance, or fuel—and ensure it’s reported accurately. A separate P11D must be completed for each employee who receives a BIK. In addition, the employer must submit a P11D(b) form to declare the Class 1A National Insurance contributions due on the total value of all BIKs.
Reporting deadlines are strict: forms must be submitted by 6 July following the end of the tax year, with Class 1A NIC payments due by 22 July.
Employers must also keep supporting documentation and inform employees of reported values. Failing to report BIKs correctly can result in penalties, fines, and HMRC scrutiny.
Managing Benefits in Kind (BIK) for companies involves more than just understanding which perks are taxable. For employers, offering non-cash benefits—such as company cars, health insurance, or fuel cards—comes with specific reporting, tax, and compliance responsibilities. Whether you're a small business or a larger organisation, knowing how to correctly handle BIKs is essential to avoid penalties and ensure full HMRC compliance.
BIK companies must calculate the cash equivalent value of each benefit provided, report it accurately via a P11D form or payroll, and account for Class 1A National Insurance contributions. This applies to all directors and employees who receive taxable perks.
Businesses may also wish to review their BIK strategy regularly to identify tax-efficient alternatives—such as salary sacrifice schemes or exempt benefits—that reduce employer costs while still offering valuable incentives to staff.
If you're managing BIKs across multiple employees or just starting to offer workplace benefits, our BIK for Companies service can help you stay on track, stay compliant, and stay efficient.
Navigating the complexities of Benefits in Kind (BIKs) can be challenging, particularly when trying to stay compliant with evolving HMRC rules. At Pulse Accountants, we help businesses of all sizes manage BIKs efficiently, reduce risk, and avoid costly reporting errors.
From assessing which employee perks are taxable to supporting you with P11D submissions, payrolling benefits, and optimising salary sacrifice arrangements, our team provides practical, tailored advice based on your specific needs. We also help identify tax-free benefits that could save your business and your employees money.
Whether you're reviewing your benefits package or facing questions from HMRC, professional guidance can make a significant difference. While this guide is designed to be informative, sometimes the best way to minimise risk is to work with a specialist.
At Pulse, we regularly help employers manage and report a wide range of Benefits in Kind (BIKs). These commonly include:
Fuel
Annual events such as Christmas parties
We support businesses in determining whether a benefit is taxable, advise on accurate valuation, and ensure proper reporting to HMRC. Our team also identifies tax-free benefits, such as company mobile phones (when provided correctly), to help employers structure cost-effective and compliant packages.
With Pulse, you can be confident that your benefits in kind strategy aligns with current legislation and supports your business objectives.
To learn more about how we can support your business with Benefits in Kind, get in touch with Pulse Accountants today.
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