What is a Benefit in Kind? (And Why Should You Care?)
- KM Accountancy
- May 16
- 5 min read
If you’re running a business or you’re a director of your own limited company, you’ve probably heard the term “Benefit in Kind” (or BIK).
In simple terms, it means any perk or benefit you receive from your company that isn’t part of your wages - but still has personal value to you.
Simple enough, right? But here’s where it gets tricky:
Some benefits are tax-free. Others come with tax and National Insurance liabilities, for both you and the business.
This guide will walk you through:
What Actually Counts as a Benefit in Kind?
Here’s how it works in simple terms:
For the Employee/Director:
The value of the benefit is added to your annual income for tax purposes.
You’ll pay Income Tax on it at your usual rate (20%, 40%, or 45%).
For the Employer (or your company if you’re a director):
The company pays Class 1A National Insurance Contributions (NICs) on the taxable value of the benefit.
For 2025/26, this NIC rate is 15% of the benefit’s value.
The company doesn’t pay PAYE tax on the benefit, but pay NIC liability.
HMRC’s logic is simple: if you get a personal benefit through your company, it’s part of your total reward for working. That means it should be taxed.
BIKs:
Increase your taxable income
Create a National Insurance liability for your company
Must be reported annually
How is a BIK’s Value Calculated?
The cash equivalent value of the benefit is calculated based on HMRC’s specific rules for each type of benefit.
For company cars, it’s based on list price, CO2 emissions, fuel type, and availability.
For private health insurance or gym memberships, it’s usually the cost to the employer.
For assets with mixed business/personal use, a reasonable apportionment is made based on usage.
HMRC uses the “market value” or the cost to the employer to determine the BIK value. Discounts or deals you might get as a business don’t reduce the BIK value for tax purposes.
Examples of Common Benefits in Kind
Let’s get specific. Here are the most common BIKs you’ll see in small businesses and for directors:
1. Company Cars
Taxed based on list price & CO2 emissions.
Electric vehicles are extremely tax-efficient (2% BIK rate until at least 2025).
Petrol/Diesel vehicles can go up to 37% BIK rate.
2. Private Medical Insurance
If your business pays for your health or dental insurance, it’s a BIK.
The BIK value is typically the full cost of the premium paid by the company.
3. Gym Memberships
Paid-for gym memberships are considered a personal benefit.
Taxable unless it’s essential for your role (which is rare).
4. Personal Use of Company Assets
Laptops, tablets, vehicles, or other equipment used for personal reasons.
Only the personal use portion is taxable.
5. Self Assessment Fees Paid by the Company
If your company pays an accountant to file your personal tax return, that’s a BIK.
Taxable at the full cost.
6. Non-Business Travel & Entertainment
If the company pays for holidays, personal trips, or entertainment that isn’t “wholly and exclusively” for business, it’s a taxable benefit.
Tax-Free Benefits: What Doesn’t Trigger a BIK Charge?
Some benefits are exempt, provided you follow the rules. These include:
Mobile phones (if the contract is between the company and provider, and personal use is minimal)
Canteen meals (provided to all staff, reasonably priced)
Work-related training & qualifications
Safety clothing & equipment (e.g., PPE, uniforms)
Certain business travel expenses (e.g., mileage allowances within HMRC-approved rates)
Workplace parking (for employees)
These only stay tax-free if they meet HMRC’s exact conditions. Any deviation, and they can become taxable benefits.
How Are BIKs Reported?
Currently, BIKs are reported annually via:
P11D forms (one per employee/director receiving benefits)
P11D(b) form (summarises total benefits and calculates Class 1A NICs due)
Key Dates:
Submit forms by 6th July after tax year ends.
Pay NICs by 22nd July (or 19th if by post).
Mandatory Payrolling of Benefits is Coming (From April 2027)
Here’s an important update you need to know:
From April 2027, payrolling Benefits in Kind will become mandatory.
What does this mean?
Instead of reporting benefits via P11Ds at year-end, most BIKs will be taxed through payroll in real time.
The tax will be deducted from the employee’s salary each month, like PAYE.
For businesses, this removes the need to submit separate P11D forms for most benefits.
Key Points:
Employment-related loans and accommodation benefits will be optional to payroll at first. Other BIKs will be mandatory.
Companies will still need to pay Class 1A NICs on BIKs.
HMRC aims to simplify benefit reporting and align it with real-time PAYE.
For now (2025/26), the current system of P11Ds remains in place — but this change is confirmed for April 2027, so it’s worth preparing early.
Top Tip: If you already payroll benefits voluntarily, you’re ahead of the curve.
What Happens if You Get BIKs Wrong?
Failing to report BIKs correctly can lead to:
Backdated tax & NICs
Late filing penalties
Interest on unpaid amounts
Potential HMRC investigations
For directors of small companies, common mistakes include claiming personal perks without declaring them (e.g., gym memberships, private medical insurance).
The Importance of Good Record-Keeping
For compliance, companies must:
Keep clear records of benefits given
Maintain receipts & usage logs (business vs personal use)
Validate employee expense claims
Even sole directors need to meet these requirements.
Final Thoughts: Use BIKs Wisely, Stay Compliant
Benefits in Kind are a valuable way to offer perks and rewards, but the tax side is non-negotiable. With the move towards mandatory payrolling, it’s essential to keep up with changing rules.
Before offering benefits, especially as a director, speak to an accountant. A quick check can save you from nasty surprises later.
Need Help with Benefits in Kind & Payrolling?
Whether you need help with this year’s P11Ds or want to get ahead of the mandatory payrolling changes, we’re here to help.
QUICK FAQ
What is a Benefit in Kind (BIK)?
A Benefit in Kind is a non-cash perk provided by a company to an employee or director, like a company car or private health insurance, that has personal value and may be taxable.
How are Benefits in Kind taxed in 2025/26?
The value of a Benefit in Kind is added to the recipient's income for tax purposes, while companies pay Class 1A National Insurance at 15% of the benefit's value.
What is changing with mandatory payrolling of benefits in kind?
From April 2027, most Benefits in Kind will be taxed through payroll in real time, replacing the need for P11D forms for these benefits.
Do all benefits in kind need to be reported to HMRC?
Yes, taxable benefits must be reported annually via P11D and P11D(b) forms until 2027, when mandatory payrolling will apply to most benefits.
What are common examples of taxable benefits in kind?
Common examples include company cars, private medical insurance, gym memberships, personal use of company assets, and non-business travel expenses.
Visit www.kmaccountancy.co.uk and fill our enquiry form and one of our friendly accountants will be in touch within 24 hours.
Use Instagram? Follow us!
Quick Disclaimer
This info is general guidance and doesn’t replace personalised advice. Always speak to an accountant about your specific situation.