If you run a business, especially as a limited company director or employer, you might offer yourself or your staff perks alongside salary — like a company car, private health insurance, or even interest-free loans.
These are known as Benefits in Kind (BiKs) — and they’re taxable.
In this blog, we’ll explain what counts as a benefit in kind, how they’re taxed, and what you need to do if you offer them.
What Is a Benefit in Kind?
A Benefit in Kind is any non-cash benefit provided to an employee or director that has monetary value. HMRC sees these perks as part of someone’s overall reward for doing the job — and so they’re usually subject to tax and National Insurance.
They’re called “in kind” because the benefit isn’t paid in money, but it still has value.
Common Examples
Here are some typical examples of BiKs:
- Company cars (especially those with private use)
- Private medical insurance
- Interest-free or low-interest loans (over £10,000)
- Free accommodation
- Gym memberships
- Childcare not covered by tax-free schemes
- Assets transferred to employees (e.g. a laptop they get to keep)
Some things you might think are BiKs (like company mobile phones or reimbursed business expenses) are often exempt, provided they meet HMRC’s rules.
Who Pays the Tax?
The tax burden depends on the benefit:
- Employees or directors pay Income Tax on the value of the benefit.
- Employers pay Class 1A National Insurance (currently 15%) on the value.
The value of the benefit is added to the employee’s pay for tax purposes — but not for actual salary payments.
How Are Benefits in Kind Reported?
Most benefits are reported annually using a P11D form, which outlines the benefits given to each employee or director.
Alternatively, some businesses choose to payroll their benefits, which means the tax is collected in real-time through PAYE — no need for a P11D. However, you still need to file a separate P11D(b) to declare and pay the employer NIC.
Are There Any Tax-Free Benefits?
Yes — certain benefits are exempt, provided the rules are followed. These include:
- Employer pension contributions
- One mobile phone per employee
- Trivial benefits (e.g. a bottle of wine or gift card worth £50 or less, not as a reward for work)
- Workplace parking
- Cycles under the Cycle to Work scheme
If you’re running a limited company and treating yourself to perks, it’s important to understand which ones are tax-efficient — and which will end up costing more than they’re worth.
A Quick Example
Let’s say your company gives you a petrol company car for personal and business use. HMRC calculates a benefit value based on the car’s list price and CO₂ emissions.
That value is then taxed as if it were extra salary. You pay Income Tax on it, and your company pays NIC.
Electric cars currently benefit from very low BiK rates, making them a popular option for directors.
Why It Matters
If you offer or receive benefits in kind and don’t report them correctly:
- You could face penalties and interest from HMRC
- You may accidentally underpay Income Tax or NIC
- You might miss out on legitimate tax-saving opportunities
Benefits in kind can be a smart way to reward yourself or your team — but they come with tax consequences. The key is to understand what’s taxable, what’s exempt, and how to report it properly.
If you’re not sure whether something counts as a BiK, or whether it’s worth doing, it’s worth a quick check with your accountant — or better yet, build it into your wider tax planning.
