Benefits in Kind: How Company Perks Affect Your Tax Bill

Company perks like private medical insurance, a company car, or a gym membership aren't free from HMRC's perspective. They're classed as benefits in kind (BIK) — non-cash compensation that's subject to income tax and, in some cases, National Insurance.

Understanding how BIK works can help you make smarter decisions about which benefits to take — and how salary sacrifice fits in.

What are benefits in kind?

Benefits in kind are non-cash perks provided by your employer that have a monetary value. HMRC treats them as additional taxable income.

Common examples:

• Company car or van
• Private medical or dental insurance
• Gym membership
• Interest-free or low-interest loans
• Living accommodation
• Childcare (above the exempt threshold)
• Mobile phone (if personal use is significant)

How are benefits in kind taxed?

Most BIK are reported on a P11D form — submitted by your employer to HMRC after the end of the tax year. HMRC then adjusts your tax code to collect the tax owed.

The tax you pay depends on:

1. The cash equivalent value of the benefit (set by HMRC rules)
2. Your marginal income tax rate (20%, 40%, or 45%)

Example: Private medical insurance worth £400/year

• Basic rate taxpayer: £400 × 20% = £80/year extra tax
• Higher rate taxpayer: £400 × 40% = £160/year extra tax

Company cars: the biggest BIK

Company cars are the most complex and often most expensive benefit in kind. The taxable value depends on:

• The car's list price (P11D value)
• Its CO2 emissions (determines the BIK percentage)
• Whether it's a fully electric vehicle (EV)

BIK rates for 2024/25:

Example: Petrol car, list price £30,000, 130g/km CO2

• BIK rate: 31%
• Taxable value: £30,000 × 31% = £9,300
• Tax for higher rate taxpayer: £9,300 × 40% = £3,720/year

Example: Fully electric car, list price £40,000

• BIK rate: 2%
• Taxable value: £40,000 × 2% = £800
• Tax for higher rate taxpayer: £800 × 40% = £320/year

This is why electric vehicle salary sacrifice schemes are so popular — the BIK rate is just 2%, making the tax cost minimal.

Employer NI on benefits in kind

Your employer also pays Class 1A NI at 13.8% on most benefits in kind. This is separate from the employee tax — you don't pay it, but it's a cost your employer bears.

Some employers factor this into decisions about which benefits to offer.

Benefits exempt from tax

Not all perks are taxable. Exempt benefits include:

• Workplace pension contributions (up to the annual allowance)
• Cycle to Work scheme bikes and equipment
• One mobile phone per employee
• Workplace canteen meals (if available to all staff)
• Eye tests and glasses for VDU users
• Long service awards (up to £50/year of service, max £500)
• Trivial benefits (under £50, not cash, not contractual)

How benefits in kind affect your tax code

Rather than collecting BIK tax through Self Assessment, HMRC usually adjusts your tax code to collect it through PAYE.

Example: You have private medical insurance worth £400. HMRC reduces your tax-free allowance by £400:

• Normal code: 1257L (£12,570 allowance)
• Adjusted code: 1217L (£12,170 allowance)

This means slightly more tax is deducted from each payslip throughout the year.

Salary sacrifice vs benefits in kind

Some benefits can be provided through salary sacrifice instead of as a standard BIK. This changes the tax treatment:

For pensions and EVs, salary sacrifice is significantly more efficient.

Summary

• Benefits in kind are non-cash perks taxed as additional income
• Tax is collected via an adjusted tax code or Self Assessment
• Company cars are the most complex BIK — CO2 emissions determine the rate
• Electric vehicles have a 2% BIK rate, making them very tax-efficient
• Some benefits (pension, Cycle to Work, one mobile) are exempt from tax
• Check your P11D each year and query any errors with your employer