Your complete guide to benefits in kind

When a business owner handed me their company credit card statement recently, I noticed several personal purchases mixed in with legitimate business expenses. ‘But it’s all going through the company, so it’s fine, right?’ they asked. Not quite!

At Adams Accountancy, we guide Kent businesses through the sometimes-confusing world of benefits in kind. Let’s clear up what they are, how they’re taxed, and how to handle them correctly.

What Exactly Are Benefits in Kind?

Benefits in kind (sometimes called BIKs or perks) are non-cash benefits provided to directors or employees. They have a monetary value but aren’t paid as part of a salary. Common examples include:

• Company cars
• Private health insurance
• Interest-free loans
• Gym memberships
• Mobile phones
• Living accommodation

These benefits are taxable just like regular income. This means both the company and the employee or director need to understand the tax implications.

How Are Benefits in Kind Taxed?

HMRC views benefits in kind as additional income. This means:

• Employees pay income tax on the value of the benefit
• The company pays Class 1A National Insurance contributions (currently 13.8%) on the value
• The benefit must be reported annually on a P11D form
• Tax is usually collected through an adjustment to your tax code

The good news? Some benefits in kind are tax-exempt or qualify for reduced tax rates, which is why proper planning is essential.

Most Common Benefits in Kind for Small Businesses

Company Cars

Company cars remain one of the most popular but heavily taxed benefits. The tax is based on the car’s list price and CO2 emissions.

A Dartford client who switched from a petrol SUV to an electric vehicle reduced their annual benefit in kind tax bill by over £4,000! HMRC provides an online calculator to work out company car tax.

Private Health Insurance

This popular benefit comes with clear tax implications. The employee pays income tax on the premium the company pays. Despite the tax, many find the benefit of private healthcare outweighs the cost.

Mobile Phones

A company mobile phone can be provided tax-free, but only one per employee. Additional phones or reimbursements for personal contract phones are taxable. Our post about allowable corporation tax deductions gives a comprehensive list of deductible expenses.

Staff Entertainment

The annual staff Christmas party can be tax-free, provided the cost doesn’t exceed £150 per person (including VAT) and the event is open to all employees.

Tax-Free Benefits in Kind

Not all benefits create a tax liability. Some of the most valuable tax-free benefits include:

• Pension contributions
• Childcare arrangements (certain types)
• Workplace parking
• Meals in a staff canteen
• Work-related training
• Eye tests for computer users

Making the most of tax-free benefits should be part of your remuneration strategy.

Trivial Benefits – Small Perks With Big Advantages

The trivial benefits exemption is a fantastic way to provide small rewards without tax implications. Benefits that cost £50 or less per person can be tax-free if they:

• Aren’t cash or a cash voucher
• Aren’t a reward for work or performance
• Aren’t in the terms of employment

Directors of close companies can receive trivial benefits up to a total of £300 per tax year. This can be a tax-efficient way to extract value from your company.

Reporting Benefits in Kind Correctly

Proper reporting is crucial:

• File a P11D for each employee or director receiving benefits by July 6th after the tax year
• Submit a P11D(b) to declare the total Class 1A National Insurance due
• Pay the Class 1A NI by July 22nd (or 19th if paying by cheque)

Missing these deadlines can result in penalties, even for small businesses.

Maximising Tax Efficiency With Benefits in Kind

Benefits in kind can be a tax-efficient way to reward yourself and your team when planned correctly. Consider:

• Choosing lower-emission vehicles to reduce car benefit charges
• Using salary sacrifice arrangements where appropriate
• Making the most of wholly tax-exempt benefits
• Using the trivial benefits exemption (Up to 6 x £50 for limited company directors and unlimited x £50 for employees

Get Your Benefits in Kind Right The First Time

Benefits in kind done wrong can create unexpected tax bills and administrative headaches. Done right, they can form part of an attractive and tax-efficient remuneration package. Make sure you are handling yours correctly by checking out the HMRC website on benefits in kind. If you still aren’t sure, here’s how we can help:

1. Book a benefits review with our team to identify potential tax savings and compliance issues.

2. Let us check your P11D preparation to ensure you’re not overpaying or underpaying tax. Call us on 01322 250 001 or email us at info@adams-accountancy.co.uk

With proper planning and reporting, benefits in kind can work brilliantly for both businesses and their teams. Let us help you get them right.

Frequently Asked Questions

How do I know if something counts as a benefit in kind?

If your company provides something to an employee that has a monetary value and can be used personally (not just for work purposes), it’s likely a benefit in kind. HMRC provides a comprehensive list on their website, but if you’re unsure, it’s best to check with your accountant.

Can I avoid benefit in kind tax by paying for the benefit myself?

Yes, if you reimburse the company for the full market value of the benefit, you can avoid the tax. This must be done before the P11D submission deadline, and proper records of the repayment must be kept.

Are electric cars still taxed as benefits in kind?

Yes, but at significantly lower rates than petrol or diesel vehicles. For the 2025/26 tax year, pure electric cars are taxed at just 4% of their list price vs 16-37% for petrol/diesel cars, making them much more tax efficient as company vehicles.

Do I need to report benefits in kind if I’m the only director?

Yes, even if you’re the only director in your company, you must still report benefits in kind on a P11D. The same rules apply regardless of company size or structure.

What happens if I forget to report a benefit in kind?

If you fail to report benefits correctly, HMRC can charge penalties and interest on unpaid tax. They can also investigate your affairs more widely, so it’s always best to ensure full compliance.

Can my company claim tax relief on benefits in kind provided?

Yes, most benefits in kind are tax-deductible expenses for the company, even though they create a tax liability for the recipient. This means your company can reduce its corporation tax bill while providing valuable benefits.

How are benefits in kind valued for tax purposes?

Most benefits are valued at their market value – what it would cost to provide the benefit to the employee. However, some benefits (like company cars) have special calculation methods defined by HMRC as mentioned above.