Your simple guide to benefits-in-kind
Employers can offer their employees a range of benefits through work. Typically, these are things like access to private medical care, dental insurance, or even a company car. They are called ‘benefits-in-kind’.
This is equally true for individuals working through their own limited company or those with partnerships, who are classed as employees and directors of their business – umbrella employees can also receive benefits-in-kind.
However, providing some benefits will incur taxes, which must be paid to HMRC. In this article, we explain what a benefit-in-kind is, how the taxable value is calculated and how you let HMRC know about ‘BiKs’.
What are benefits-in-kind?
Employees are sometimes offered benefits by their employer. These are known as benefits-in-kind (sometimes just referred to as ‘BiK’) and the employer or company is responsible for paying any tax due on those benefits. Some benefits-in-kind are tax-free, like childcare vouchers, access to counselling services, or Cycle to Work schemes.
Examples of benefits in kind
There are many different benefits-in-kind that small business owners are eligible for. Still, the most common are accommodation and company cars:
Accommodation
Sometimes, you may need to book overnight accommodation if you’re working away for more than one day. In this instance, accommodation would be a benefit-in-kind, with the cost of the rent (or stay) taxable. However, some on-site accommodation for permanent employees – such as live-in positions as a chef or bar manager – are tax-free.
Company Car
Many employers provide their employees with a company car – as a business owner, you may decide to take up this option too.
Tax is paid on the rateable value of the vehicle, which is worked out as a percentage of its list price, its value to buy new, and other factors like fuel it uses. The amount of tax paid by the employee on that percentage depends on the income tax band they’re in.
The rates for vehicles with lower emissions are more favourable, ranging from 12-24% for emissions between 50-100g CO2/km, and 25-34% for emissions between 100-150g.
The benefit-in-kind rate for electric cars is even more competitive, however.
Electric car benefit-in-kind
As the tax owed on company cars is linked to its emissions, the benefit-in-kind for electric cars is currently at a very tax-efficient rate. Instead of paying tax on the full list price of the vehicle, you only pay tax on 2% of the value – because BiK is calculated at a rate of just 2% (until the 2024/25 tax year).
For an electric vehicle with a list price of £50,000, for example, the taxable value is just £1,000. The amount of tax paid over the tax year would be £200 for someone in the basic rate tax band.
Plug-in hybrids also have a better benefit-in-kind rate than petrol or diesel vehicles, staggered upwards in line with the vehicle’s electric range.
Tax liability
Your tax liability will vary, as the taxable value of each benefit detailed above is calculated differently. It’s crucial that you work these figures out accurately so that you can inform HMRC of any tax liability.
You can find benefit-in-kind calculators online, particularly useful if you’re trying to work out company car benefit-in-kind rates. And remember, some benefits – like childcare vouchers – are tax-free.
How to report benefits in kind
If you’re providing a taxable benefit-in-kind and repaying expenses to employees through your company – including yourself – then you’ll need to report that to HMRC.
If you provide benefits via the payroll – sometimes referred to as ‘payrolling’ benefits-in-kind – you can report them and make payments online at any time during the tax year. You’ll also need to send HMRC a P11D(b) form to report your Class 1A National Insurance obligation.
For benefits not provided via payroll, you’re required to send HMRC a P11D form – one for each employee – at the end of the tax year detailing the benefits-in-kind they receive. You’ll also have to submit a separate P11D(b) form to report on the total Class 1A National Insurance that you owe HMRC, too.
More guidance on benefit-in-kind tax liability can be found on gov.uk.
A recap
So, a benefit-in-kind is a taxable benefit provided by an employer to its employees. Depending on the benefit – accommodation, company car, or loan – the amount of tax due on it differs. You must report any benefits-in-kind to HMRC and pay the relevant taxes due on them.
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