Understand HMRC benefit in kinds (BIK), what counts as a taxable benefit for payroll (along with examples) and exemptions available for certain types of expenses that can be provided tax-free.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
What is a Benefit in Kind?
A benefit in kind is defined by HMRC as a non-cash ‘perk’ provided by a registered employer to an employee. Where benefits in kind have been provided, employers need to report the value and type of perk given using a P11d form and P11d(b) form.
Examples of HMRC Benefit in Kind
Here are some examples of what HMRC considers a BIK:
- Company car
- Fuel cards
- Parking spaces
How Does Tax and National Insurance on Benefit in Kinds Work?
Employers pay additional employer’s national insurance on the cash value of the benefit in kind provided. The employee must also pay income tax on the cash value of the benefit.
How to Work Out the Cash Value of a Benefit in Kind
For some BIK, the cash value is worked out as the amount paid during the tax year. For example, if an employee is provided with private healthcare which costs the employer £200 a month, then the cash BIK on the healthcare for the tax year would be £2,400 (12 months x £200).
Other types of benefit in kinds such as cars and vans, the cash value must be worked out in accordance with special HMRC rules.
How Does BIK on Cars Work?
When an employer provides an employee with a car, the car becomes a taxable benefit in kind. Both the employee and employer will pay tax based on the list price of the car and its accessories. Read this guide to find out about calculating the list price of a car and how fuel benefit works.
How Does BIK on Vans Work?
The cash value of a van for benefit-in-kind purposes is set at a flat rate, but there are strict criteria for what HMRC considers a van. Read this guide to find out the definition of a van and the flat rates set by HMRC.
Non-Taxable Benefit in Kinds
Some benefits do not attract additional tax and national insurance and may not even need to be reported to HMRC. Here are some examples:
- Salary sacrifice arrangements;
- A single mobile phone in the name of the business;
- Bikes for employees;
- Expenses covered by an exemption agreement (see below);
- Trivial benefits.
Benefit in Kind Exemptions
Certain business expenses reimbursed to employees at the same amount that they cost are covered by an exemption. That’s costs like:
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
From April 2016 expenses covered by the benefit in kinds exemption do not need to be reported on a P11d form and do not attract additional tax and NI. Prior to April 2016, businesses needed to contact HMRC to arrange a dispensation agreement.
Businesses don’t need to apply for an exception but they should keep all receipts and expense claim forms as evidence as well as have an approval process in place for managing/approving expense claims.