What Is Benefit in Kind? Tax on Perks and Fringe Benefits
A Benefit in Kind (BIK) is any non-cash perk you receive from your employer that has a monetary value. HMRC treats most BIK as taxable income, increasing your tax bill as if you had received extra salary — even though you never see the cash.
What Counts as a Benefit in Kind?
A Benefit in Kind is anything of value provided by an employer (or an associate of an employer) to an employee or director that is not cash salary. HMRC taxes BIK because without this rule, employers could pay employees entirely in perks and avoid income tax and National Insurance.
Common examples of taxable BIK include: company cars and fuel, private medical or dental insurance, interest-free or low-interest loans above £10,000, gym memberships, accommodation, and private use of employer-owned assets.
How BIK Tax Is Calculated
Your employer reports the taxable value of benefits to HMRC on a P11D form by 6 July following the tax year end. HMRC then adjusts your tax code to collect the additional income tax owed through PAYE — usually reducing your Personal Allowance so that more of your salary is taxed.
For example, if your employer provides private medical insurance worth £1,500, HMRC reduces your code so you pay 20% extra tax on £1,500 = £300 additional tax per year (or £500 if you are a higher rate taxpayer paying 40%).
Company Car Tax: The Biggest BIK
Company car tax is often the most significant BIK charge. The taxable value is calculated as:
P11D value × CO2 BIK percentage = Annual BIK value
The CO2 BIK percentage ranges from 2% for zero-emission electric vehicles up to 37% for high-polluting cars. For a petrol car emitting around 150g/km CO2, the rate is approximately 30%.
| Car Type | P11D Value | BIK Rate | Taxable BIK | 20% Taxpayer Cost | 40% Taxpayer Cost |
|---|---|---|---|---|---|
| Electric (0g/km) | £35,000 | 3% | £1,050 | £210/yr | £420/yr |
| Hybrid (50g/km) | £35,000 | 8% | £2,800 | £560/yr | £1,120/yr |
| Petrol (150g/km) | £30,000 | 30% | £9,000 | £1,800/yr | £3,600/yr |
| Diesel (180g/km) | £30,000 | 34% | £10,200 | £2,040/yr | £4,080/yr |
The electric car rate of just 3% in 2025-26 is a major government incentive to switch from petrol and diesel company cars. It is set to rise gradually to 7% by 2027-28 but remains far below ICE vehicle rates.
Private Medical Insurance as BIK
If your employer pays your private medical insurance premium, the full premium is a taxable BIK. A typical individual policy costs £1,000–£2,000/year; a family policy can reach £3,000–£5,000. At 20% tax, a £1,500 premium creates a £300 annual tax charge. Higher rate taxpayers pay £600 on the same benefit.
Low-Interest and Interest-Free Loans
Loans from employers above £10,000 are taxable as BIK. The taxable benefit is the difference between the interest you pay and the HMRC official rate, which is 2.25% for 2025-26. A £50,000 interest-free loan creates a BIK of £50,000 × 2.25% = £1,125 per year — generating a £225 tax charge for a basic rate taxpayer.
Loans of £10,000 or less are exempt from BIK tax entirely.
Class 1A National Insurance on BIK
Employers also pay Class 1A National Insurance at 13.8% on the total taxable value of all benefits in kind they provide. This is reported and paid via form P11D(b). Employees do not pay NI on BIK (only income tax) — but employers' NI cost can influence which benefits they choose to offer.
Common Exempt Benefits (No BIK Tax)
- Employer pension contributions — fully exempt regardless of amount
- One mobile phone per employee (any value)
- Bikes and safety equipment under the Cycle to Work scheme
- Staff parties up to £150 per head per year
- Trivial benefits worth £50 or less (not cash or vouchers)
- Eye tests and corrective glasses for screen workers
- Workplace canteen meals available to all staff
- Qualifying relocation expenses up to £8,000
- Long-service awards up to £50 per year of service (minimum 20 years)
Frequently Asked Questions
Do I pay tax on all benefits in kind?
No. Many common perks are exempt: pension contributions, one mobile phone, cycle to work equipment, staff parties up to £150/head, and trivial benefits under £50. Taxable BIK includes company cars, private medical insurance, and employer loans over £10,000.
How is company car tax calculated?
P11D list price multiplied by a CO2-based BIK percentage. Electric cars are just 3% in 2025-26; petrol cars at 150g/km are around 30%. A 20% taxpayer pays 20% of the resulting BIK value as additional income tax each year.
What benefits are tax-free from an employer?
Pension contributions, one mobile, cycle to work equipment, staff parties (up to £150/head), trivial benefits under £50, eye tests, canteen meals, and qualifying relocation expenses up to £8,000.