As a business owner, you have the option of providing your directors and employees with Benefits in Kind (also referred to as a perk or fringe benefit), alongside their normal salaries.
In London especially, rising mortgage rates and longer payment cycles have made it harder for people to pay their bills, and so this can be a great strategy, helping to attract new employees and also increasing your staff retention rate.
What exactly counts as a Benefit in Kind, though? And what are your tax responsibilities as an employer?
Let’s dive in.
What is Benefit in Kind (BiK)?
Benefits in Kind are basically just non-cash goods and services which employers sometimes provide to directors and employees on top of their regular wages or salary.
They are often used as a way to attract and retain staff, or simply to improve their overall quality of life, thus making the job itself easier.
How is Benefit in Kind taxed in the UK?
As these perks are not considered “wholly necessary” for business purposes, and because they increase the overall value of what an employee or director receives from a company, they’re subject to Income Tax and National Insurance.
There are tax-free perks you can offer, and these might include things like a catered lunch or work-related training.
What counts as a taxable Benefit in Kind?
In truth, businesses can provide almost anything as a Benefit in Kind, whether it’s a company car, access to private healthcare, or a gym membership.
Confusingly, though, not all company benefits are classed as Benefits in Kind (e.g. things like childcare, a catered lunch, or a company van which is only used for work).
Business expenses also don’t count as Benefits in Kind. For example, payments made to reimburse employee expenses.
What are some common types of Benefits in Kind for London employers?
If you’re an employer based in London, you’ll want to think about offering things to help combat the ever-increasing cost of living. Some of the most common BiKs for London employers to give include:
- Private medical insurance
- Company cars & fuel
- Tech & extra devices (provided primarily for work, excluding the first mobile phone)
- Interest-free loans (such as travel season ticket loans under £10,000)
In recent years, rising rent prices have forced people to move into more rural areas away from the city, so offering a travel allowance on top of any Benefit in Kind could help you retain (and attract) staff who have to commute from farther out.
There are tax responsibilities that come with travel allowance – and whether or not it attracts tax and National Insurance will depend on whether you cover personal travel too.
Travel benefits in general are great for people working in and around the capital, so you could also consider offering something like a ‘Cycle to Work’ scheme, which allows employees significant savings by way of a salary sacrifice.
This is a tax-exempt BiK, meaning it’s exempt from tax and National Insurance (so you don’t need to report it).
What are my responsibilities as an employer?
As an employer, your main responsibilities are reporting Benefits in Kind and collecting the right amount of tax that’s due, and there are two main ways you can currently do this.
Option 1: Payrolling
You report the perks through your payroll software, so the tax comes out automatically each time you run payroll. No separate paperwork at year-end.
Option 2: P11D forms
You fill in a P11D for each employee who got perks, plus a P11D(b) to total up what you owe.
April 2027 changes to be aware of
HMRC is scrapping the P11D system. From April 2027, payrolling perks won’t be a choice anymore – it’ll be the law, rolled out in two phases:
- April 2027: Company cars, car fuel, vans, van fuel, and medical benefits must be payrolled
- April 2028: Pretty much everything else follows
The only exceptions (for now) are loans to employees and living accommodation – these can still go through the old P11D process.
Keeping good records
Whichever way you do it, make sure to keep good records. That includes dates, amounts, how people travelled – whatever applies to the perks you’re reporting.
If you’re not sure how this affects your business, it’s worth a quick chat with your accountant before the deadlines hit.
How does Benefit in Kind affect employees?
The recipient will pay Income Tax on the benefit, just like they would if they received the value of it in the form of a more traditional salary. They may also need to pay National Insurance if the benefit is cash, or something which can be sold on.
On a side note: While employees rarely pay National Insurance on non-cash perks, the business must pay Employer’s Class 1A National Insurance on them.
How do I avoid BiK mistakes?
The rules around Benefits in Kind are complex and, as we’ve hopefully illustrated, ever-evolving! Examples need to be carefully considered on a case-by-case basis to see if any tax is payable by the employer and/or their business.
For extra peace of mind, you can discuss any and all benefits you plan to offer in your company with a qualified accountant, who will be able to simplify the process and ensure you’re operating in the most tax-efficient way possible.
Find more help with accounting and finance for your London-based business in our information centre.
