In today’s competitive employment landscape, a salary alone often isn’t enough to attract and retain top talent. That’s where benefits in kind (BIK) come in. These are non-cash remuneration provided by an employer to an employee in addition to their standard pay. While they can add considerable value to an overall compensation package, they may also carry tax implications.
What Are Benefits in Kind?
Benefits in kind are non-monetary perks given to employees, which hold monetary value and are often taxable. They range from company cars and private healthcare to gym memberships and staff discounts. The key aspect is that they provide a personal benefit that can be measured in financial terms, even if no direct cash changes hands.
HM Revenue and Customs (HMRC) in the classifies BIKs as taxable benefit, unless they fall under an exemption. That means many of these perks must be reported on a P11D form and may lead to additional income tax for the employee and National Insurance contributions for the employer.
Common Types of Benefits in Kind
The nature and extent of BIKs can vary widely by industry and role, but some of the most common benefits include:
1. Company Cars
A well-known benefit, especially for employees who travel often. The taxable value depends on the car’s list price, CO₂ emissions, and fuel type. Electric vehicles currently benefit from favourable tax treatment in the UK.
2. Private Medical Insurance
Employers may offer private health cover to reduce wait times for treatment and support employee wellbeing. This is a popular perk but must be reported for tax purposes.
3. Accommodation
Providing rent-free or subsidised housing, particularly for employees required to live on-site (e.g. caretakers or hospitality staff), can count as a BIK, with complex tax rules depending on the circumstances.
4. Loans at Low Interest
Loans offered below the official interest rate (currently 2.25% as set by HMRC) can be considered a taxable benefit if the loan exceeds £10,000.
5. Childcare and Nursery Support
Vouchers or on-site nursery places may be exempt in limited circumstances, but any additional support could be taxable.
6. Home Broadband and Mobile Phones
If provided primarily for business use, these may not be taxable. However, any personal use can create a BIK liability.
7. Staff Discounts and Gifts
Retailers often give employees discounts on their own products or occasional gifts. While modest discounts are usually exempt, larger or regular gifts may need to be reported.
8. Training and Education Support
Some training benefits are exempt, especially if job-related. However, paying for unrelated educational qualifications may count as a BIK.
Reporting and Compliance
Most BIKs must be declared annually via a P11D form submitted to HMRC. Employers must also pay Class 1A National Insurance on most taxable benefits. In future, businesses will be required to “payroll” benefits, integrating them into employees payslips to streamline reporting.
Final Thoughts
Benefits in kind can be a powerful part of your total reward strategy, offering meaningful support to employees while reinforcing your company’s culture and values. However, it’s important for both employers and employees to understand the tax implications and stay compliant with HMRC rules.