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A benefit in kind is a non-cash perk provided by an employer. Life insurance may be classed as a BIK if:
It’s employer-paid and benefits the employee personally
It’s not a Relevant Life Policy or registered group scheme
Tax and reporting rules apply if not exempt
Employers often provide life insurance as part of an employee benefits package, but it’s important to understand when this cover becomes taxable. If the life insurance policy is paid for by the employer and offers personal benefit to the employee or their family, HMRC may consider it a benefit in kind.
This means the value of the premiums could be subject to income tax and National Insurance contributions unless the policy qualifies for specific exemptions, such as Relevant Life Insurance or registered group schemes.
Life insurance can be a benefit in kind (BIK for companies) if paid for by an employer and the policy doesn’t meet HMRC’s exemption rules.
Key points:
Yes, if it provides personal benefit and isn’t a qualifying scheme
No, if structured as a Relevant Life Policy or registered group scheme
Taxable if not compliant — report via P11D or payroll
The question “is life insurance a benefit in kind in the UK?” depends on the nature of the policy and who the beneficiary is. Generally, life insurance can be classed as a benefit in kind when an employer provides a policy for the personal benefit of an employee or director. In such cases, the premium paid by the employer may be considered a taxable perk under UK tax law.
However, not all life insurance arrangements fall under this rule. Certain policies, such as Relevant Life Insurance, are structured in a way that typically avoids being taxed as a BIK. These are written in trust and designed to offer tax-efficient life cover to employees without being treated as part of their taxable income. On the other hand, a standard whole-of-life or term life insurance policy provided by an employer could be considered a benefit if it's for the employee’s personal protection.
Understanding the classification of life insurance is essential for both employers and employees. Getting it wrong could lead to unexpected tax liabilities and reporting obligations. Speak to an accountant for guidance on how your specific life insurance arrangements are treated by HMRC.
Life insurance becomes a benefit in kind when an employer pays for a policy that directly benefits an individual employee or director, rather than serving a wider business need or being structured in a tax-efficient way. This generally applies when the life insurance:
Is paid for by the company
Is not part of a qualifying group scheme
Benefits the employee’s family or personal estate
Is not written into a trust for business purposes
In such cases, HMRC may view the premium as part of the employee’s total remuneration package. That means the value of the premiums needs to be declared, and the employee may be liable for income tax on that amount.
If you’re unsure whether your business’s life insurance arrangements qualify as BIK or not, this is a critical area to clarify. The distinction often hinges on subtle legal and structural differences.
If life insurance is deemed a benefit in kind, it becomes subject to Income Tax for the employee and potentially Class 1A National Insurance Contributions (NICs) for the employer. The way this tax is calculated depends on the cost of the policy to the employer.
Here's how the tax process generally works:
The annual premium paid by the employer is treated as the taxable value of the benefit.
This value is reported to HMRC via a P11D form or through payroll if using PAYE settlement agreements.
The employee then pays income tax on the premium value at their marginal rate.
The employer pays Class 1A NICs at the current rate (13.8% as of 2025) on the value of the benefit.
It’s important to get the valuation and reporting right to avoid penalties or unexpected tax bills. Consult a payroll specialist or accountant for accurate reporting and to explore more tax-efficient ways of offering life cover to your team.
Whether life insurance is classed as a benefit in kind depends on the type of policy and how it is structured. Not all employer-funded life insurance will automatically trigger a tax liability. The classification largely depends on who the policy benefits and whether it’s written into a trust. Understanding the differences between types of life insurance is essential to avoid unexpected tax consequences for both the employer and employee.
Here’s a breakdown of the most common types of life insurance and how HMRC typically treats them:
| Type of Life Insurance | BIK Status | Tax Impact | Best For |
|---|---|---|---|
| Relevant Life Insurance | Not a BIK | No income tax for employee; tax-deductible for business | SMEs/directors offering individual cover |
| Group Life Insurance (Registered Scheme) | Not a BIK | No tax on premiums for employee; employer pays policy cost | Larger teams needing uniform cover |
| Employer-paid personal life insurance | Benefit in Kind | Employee pays tax on premium; employer may pay Class 1A NICs | Ad hoc or director-only personal cover |
| Individual life insurance (employee-paid) | Not a BIK | No tax implications for employer or employee | Personal protection outside of employment |
If a life insurance policy is considered a benefit in kind, the responsibility for tax is shared between the employee and the employer—but in different ways.
Employee: Must pay Income Tax on the value of the premiums paid by the employer. This is usually taxed at their marginal rate (e.g. 20%, 40%, or 45%).
Employer: Must pay Class 1A National Insurance Contributions (NICs) on the taxable benefit. This is calculated based on the premium value.
The benefit is typically reported through a P11D form at the end of the tax year. Alternatively, some employers choose to use payrolling benefits, which integrates the tax directly into monthly salary deductions.
Failing to report life insurance correctly can lead to HMRC penalties and employee dissatisfaction due to surprise tax bills.
Employer-provided life insurance can be treated as a benefit in kind depending on how the policy is set up. The default assumption is that if the benefit is for the personal protection of the employee or their family, it is potentially taxable.
However, exceptions exist. The following employer-provided life insurance arrangements are typically not classed as BIK:
Group life insurance policies registered under HMRC rules
Relevant life plans, provided they’re written into trust and meet qualifying conditions
If, on the other hand, the employer simply pays for an off-the-shelf life insurance policy for a specific employee without using a trust or group structure, it will most likely be treated as a BIK. The premiums will then count toward the employee’s taxable income.
To avoid unnecessary tax complications, employers should explore group schemes or relevant life policies, which are specifically designed to be BIK-exempt.
Avoiding life insurance being classed as a benefit in kind involves choosing the right policy structure and ensuring it's implemented correctly. The goal is to ensure the benefit does not trigger personal tax liability for the employee.
Here are effective ways to achieve this:
Use a Relevant Life Policy: These are HMRC-approved and usually avoid BIK classification if written into trust.
Set Up a Group Life Scheme: Registered group schemes are exempt and widely used for teams or companies with multiple employees.
Avoid personal-use policies paid by the employer: Standard life insurance taken out in the name of the employee and paid by the company is almost always classed as a BIK.
By planning correctly, you can offer meaningful protection to employees without incurring extra tax charges. Speak to an accountant to ensure your chosen policy meets HMRC’s exemptions and is correctly documented.
A Relevant Life Insurance policy is one of the most efficient ways for a business to offer life cover to an employee without triggering a benefit in kind charge. As long as the policy is structured correctly and meets HMRC’s qualifying criteria, it is not treated as a taxable benefit for the employee.
To qualify for BIK exemption, a Relevant Life policy must:
Be paid for solely by the employer
Provide a lump sum on death before age 75
Be written into a discretionary trust
Not include critical illness or income protection elements
Because it’s held in trust and structured solely as a death-in-service benefit, it remains outside the employee’s estate for inheritance tax purposes, and the premiums are not taxed as income. Additionally, the cost can often be offset against corporation tax for the business.
This makes it a powerful planning tool for directors and small businesses.
If life insurance is classed as a benefit in kind, employers must follow specific reporting requirements to stay compliant with HMRC rules. The main obligation is to declare the taxable benefit using form P11D, which details non-cash benefits provided to employees.
Employers must:
Submit the P11D by 6 July following the end of the tax year
Provide a copy to the employee
Submit a P11D(b) to report the total Class 1A NICs due
Pay Class 1A NICs by 22 July (if paying electronically)
Alternatively, some employers opt to payroll benefits, meaning the value of the life insurance is added to monthly earnings and taxed in real time. While this simplifies administration, it must be registered in advance with HMRC.
Failure to comply with these requirements can lead to penalties and interest charges.
Group life insurance schemes are a common employee benefit, and the good news is they are generally exempt from benefit in kind treatment when structured correctly. Provided the scheme is a registered group life policy, the premiums paid by the employer are not taxed as income for the employee.
To maintain this exemption, the policy must:
Be open to a broad group of employees (not just directors)
Meet the requirements of HMRC’s “registered” status
Be held in trust with a clear set of beneficiaries
These policies are often used by medium to large companies as part of a wider employee benefits package. Even though the employer pays for the cover, employees won’t face personal tax liabilities under the current rules.
However, employers still need to ensure the policy documentation, trust arrangements, and eligibility rules are in line with HMRC guidelines. A professional accountant can help review your group scheme to ensure it remains tax-efficient and compliant.
Life insurance provided through a salary sacrifice arrangement may still be classed as a benefit in kind, depending on how the policy is structured and the type of insurance being offered.
Since the Optional Remuneration Arrangements (OpRA) rules were updated in April 2017, HMRC has tightened how salary sacrifice is treated for tax purposes. In many cases, the tax advantages of salary sacrifice have been reduced or eliminated—particularly when the benefit is not exempt, such as standard life insurance policies.
However, exempt benefits, like employer-provided group life insurance or Relevant Life policies, can still retain their tax-efficient status even under salary sacrifice, if structured correctly.
If you’re considering offering life insurance via salary exchange, it’s important to assess the tax implications under current OpRA legislation.
Calculating the value of a life insurance benefit in kind is relatively straightforward but must be done accurately to avoid underreporting to HMRC. The taxable value is typically based on the cost to the employer of providing the benefit—in this case, the annual premium paid for the life insurance policy.
Here’s how to calculate it:
Determine the total premium paid by the company for the policy.
If the policy covers more than one employee, apportion the premium fairly across individuals.
The value of the benefit is then declared on the employee’s P11D (unless the benefit is payrolled).
The employee pays income tax on this value, and the employer pays Class 1A NICs on the same amount.
It’s important to ensure any discounts, shared policies, or additional benefits (like critical illness cover) are factored in, as they can affect how the benefit is valued.
Getting the calculation wrong can result in underpaid tax or HMRC penalties.
Company directors often include life insurance as part of their remuneration or succession planning, but when not structured correctly, the premiums can be classed as a benefit in kind, resulting in personal tax consequences.
If the company pays for a life insurance policy that benefits the director or their family personally—without using a qualifying structure like a Relevant Life Policy—HMRC will generally treat it as a BIK. This means:
The director pays income tax on the premium amount
The company pays Class 1A National Insurance
The benefit must be reported via P11D or through payroll
However, directors can avoid these tax implications by using Relevant Life Plans, which are specifically designed for directors and key employees. These plans offer high-value cover, are written into trust, and do not count as a BIK under current HMRC rules.
Directors should carefully consider the implications of how life insurance is provided through the company.
The main difference between personal life insurance and life cover classed as a benefit in kind lies in who pays the premiums and how the policy is taxed.
Personal life insurance is paid directly by the individual using after-tax income. There are no tax implications for the employer, and the policy sits entirely outside the business. The cover is private and cannot be claimed as a business expense.
Life insurance provided by the employer, when structured incorrectly, can be classed as a benefit in kind. In this case, the premiums are paid by the business but are taxable to the employee or director unless the policy qualifies for an exemption (e.g. through a Relevant Life Plan or group scheme).
Using the wrong structure can lead to tax inefficiencies and compliance risks. By contrast, using a Relevant Life policy allows employers to provide life cover that is not a BIK, while also being corporation tax-deductible.
Choosing between personal and company-funded cover depends on your goals and tax position.
Handling life insurance benefits in-house without specialist support may seem manageable—especially for smaller businesses—but it often carries hidden risks. The complexity of HMRC’s benefit in kind rules, evolving tax legislation, and varying policy structures means mistakes are easy to make and costly to correct.
Common risks include:
Misclassifying a policy as tax-exempt when it isn’t
Incorrectly valuing premiums or apportioning costs between employees
Failing to file P11Ds or Class 1A NICs on time
Overlooking the impact of salary sacrifice under OpRA rules
Using personal-use policies that attract unexpected tax liabilities
These errors can result in penalties, backdated tax bills, and increased NIC costs. They may also lead to employee dissatisfaction if individuals are surprised by tax deductions.
Many companies underestimate the reporting and compliance obligations that come with providing life cover. Consulting an experienced accountant helps reduce these risks and ensures policies are tax-efficient and fully compliant from the outset.
At Pulse Accountants, we understand that navigating the rules around life insurance and benefit in kind (BIK) compliance can be complex—especially for directors and business owners balancing multiple responsibilities. Our team specialises in helping businesses structure life insurance policies in a way that is both tax-efficient and fully compliant with HMRC regulations.
We offer support at every stage, from reviewing your current policies and identifying any potential BIK exposure to helping you implement more efficient alternatives such as Relevant Life Plans or HMRC-registered group life schemes. We also manage all aspects of BIK reporting, including P11D submissions and Class 1A NIC calculations, or help you set up payrolling if that’s more appropriate for your business model.
By working closely with your insurers and internal teams, we ensure your policies are correctly classified and reported—helping you avoid penalties, save money, and deliver meaningful benefits to your employees. If you’re unsure about the tax status of a life policy or want peace of mind that your arrangements are fully compliant, speak to Pulse Accountants for clear, reliable guidance.
Choosing Pulse Accountants means partnering with a team that not only understands the detail behind life insurance benefit in kind rules, but also recognises how they affect your wider business strategy. We take a holistic approach to your tax and payroll obligations, ensuring that the benefits you offer—like life insurance—are structured in a way that protects both your team and your bottom line.
Our approach is grounded in clarity, compliance, and proactive advice. Whether you’re a director seeking personal cover through the business or an employer managing group life schemes, we work with you to find the most tax-efficient solution. We don’t offer off-the-shelf answers; we provide tailored support that reflects your company’s size, structure, and long-term goals.
With Pulse Accountants, you gain more than just technical knowledge—you gain a trusted partner who can help you offer valuable employee benefits without falling foul of HMRC rules. If you’re looking for experienced, straight-talking accountancy support, we’re ready to help you get it right from day one.
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