Benefit in Kind Explained

What is a benefit in kind?

A benefit in kind (BIK) is any non-cash benefit that an employee receives from their employer. The most common examples include company cars, private medical insurance, employer-paid gym memberships, interest-free loans above £10,000, and accommodation provided by the employer.

Employers report these on a P11D form after each tax year. HMRC then adjusts the employee's tax code to collect tax on the benefit value throughout the following year.

How it works

Each type of benefit has its own valuation rules. Company cars are valued based on the list price and CO2 emissions. Private medical insurance is valued at the cost the employer pays for the policy. Interest-free loans are valued at the interest you would have paid at HMRC's official rate (currently 2.25%).

Some benefits are tax-exempt: workplace pensions, Cycle to Work bikes, workplace nurseries, one mobile phone per employee, and trivial benefits worth £50 or less per occasion.

The employer pays Class 1A NI at 13.8% on the total value of all taxable benefits.

Real example

Sophie earns £50,000 and receives private medical insurance worth £1,200 per year from her employer. The £1,200 is added to her taxable income through her tax code. As a higher rate taxpayer on the marginal £1,200:

Sophie pays £480 per year in tax for a benefit worth £1,200 to her. The employer also pays £165.60 in Class 1A NI. Even with the tax, the benefit costs Sophie less than buying private health insurance herself.

Who does this affect?

Any employee receiving non-cash perks from their employer is affected. This is especially relevant for company directors and senior employees who tend to receive the most benefits. Around 5 million employees in the UK receive at least one taxable benefit in kind each year.

HMRC source

gov.uk/tax-company-benefits lists all types of benefits in kind and their tax treatment.