What are benefits-in-kind (BIK)? A guide for employers

Company cars, premium private health insurance, and interest-free personal loans. In the United Kingdom, they’re called benefits-in-kind (BIKs)—noncash rewards that help make your organization a standout place to work. But while they might catch the attention of high-level talent, they also come with tax responsibilities that employers and employees shouldn’t overlook. 

In this guide, we’ll explain how benefits-in-kind work, including what counts as a BIK, how they’re taxed, and which exemptions might apply. You’ll also learn how to properly report BIKs to His Majesty's Revenue and Customs (HMRC)—the U.K.’s tax authority—to stay compliant and avoid payroll tax mistakes that could lead to penalties or added costs.

What are benefits-in-kind?

In the U.K., benefits-in-kind (BIKs) are noncash perks that employees receive as part of their total compensation package. In other countries, such as the United States and Australia, they’re more commonly known as fringe benefits. Unlike wages or salaries, BIKs have a monetary value but aren’t paid in cash. Common examples include company cars, private medical insurance, home phone services, and gym memberships. Employers may offer them to employees for free or at a significantly reduced cost, and many are subject to taxation.

When curated strategically, BIKs are a win-win. They make compensation packages more attractive, increase employee satisfaction, and improve retention, offering employees valuable support while giving companies a competitive edge in hiring the U.K.’s top talent. 

What sets these benefits apart is that, while employees don’t receive them as direct cash payments, they still hold monetary value. That value counts toward an employee’s total salary and wages, which makes many benefits-in-kind subject to tax. For workers with tax residency in the U.K., these benefits must be reported to HMRC and typically appear on payslips with the appropriate tax deductions.

How are benefits-in-kind taxed?

How do benefits-in-kind work come tax time? It depends. 

HMRC typically taxes benefits-in-kind because they provide additional monetary value beyond an employee’s regular salary or wages. British tax authorities treat BIKs as taxable earnings and either deduct tax through payroll in real time or require employers to report them annually via a P11D form.

The total taxable value of a benefit-in-kind depends on the perk provided—each benefit comes with its own rules and calculations. For example, company cars are taxed based on factors like CO2 emissions and list price, while personal loans above £10,000 are assessed based on the difference between the HMRC rate and the loan’s interest rate.

That said, not all BIKs are taxable. Trivial benefits—which cost less than £50, aren’t performance-related, and aren’t included in an employee’s contract—are considered tax-free. These small, incidental perks fall outside the scope of reporting and taxation.

Common examples of benefits-in-kind

Some employee benefits come with a tax bill, but others don’t—and the distinction isn’t always obvious. While trivial benefits (like a birthday cake or monogrammed mug) are exempt due to their low monetary value, other nontaxable perks qualify for exemptions based on their purpose. 

Here’s a breakdown of commonly offered benefits grouped by their tax treatment: 

Taxable BIKs

These benefits have a clear monetary value and are considered part of an employee’s overall salary or wages, each carrying a unique tax contribution. They must be reported on a P11D form and might affect an employee’s tax code. 

• Company car: This includes personal use of a vehicle and fuel that the employer provides.
• Private health insurance: The employer pays for private medical or dental insurance under a healthcare plan.
• Employer-provided housing: The employer provides accommodation to employees for work or relocation purposes. Tax also applies to additional costs such as Council Tax, furniture, cleaning staff, and heating charges.
• Tool allowance: The employer covers the cost of tools that employees use exclusively for work purposes.
• Relocation costs: Employers who help employees move to new accommodations, including expenses related to buying or selling a home, moving, or bridging loans, must pay taxes. 
• Business travel: The employer reimburses or pays for business travel, accommodations, and meals, which may be subject to tax.
• Vouchers: These include vouchers that are exchangeable for cash or goods and services, such as coffee shop vouchers for remote workers. 

Nontaxable benefits

Certain BIKs are exempt from taxes because they’re necessary for the job or fall under specific HMRC exemptions. These don’t need to be reported on a P11D tax form or payroll system since they aren't taxed: 

• Childcare: Most workplace nurseries and childcare vouchers are exempt from taxes, depending on the childcare scheme and the employee’s salary or wages. 
• Supplies and services: The employer provides items such as work-from-home equipment, stationery, and other consumables that are necessary for the job.
• Meals: If the employer provides meals on business premises, through a staff canteen, or via meal vouchers, these are tax-exempt as long as they’re offered to all employees.
• Pension expenses: These include annuities, lump sums, gratuities, or other pension-related payments made to the employee or their family members after retirement or in the event of bereavement.
• Medical treatment abroad: The employer pays for necessary medical treatment or specialized healthcare plans during international business travel.
• Health screenings: The employer covers the cost of one health screening and one medical check-up per tax year.
• Certain living accommodations: The employer provides housing when it’s essential for performing the job or ensuring the employee’s safety.
• Professional training: Fees for courses, examinations, books, and travel are tax-free as long as they contribute to teaching or improving new skills, last less than two years, and are available to all employees in a similar position. 

How employers report benefits-in-kind taxes

It’s common for employers to add the value of benefits-in-kind to taxable pay each payroll period, deducting tax in real time. Alternatively, some benefits are reported separately on a P11D form, and HMRC adjusts the employee’s tax code to collect the tax due in future pay periods.

The P11D tax form outlines the value of any taxable noncash benefits provided to employees during the tax year. A separate P11D must be completed for each employee who receives taxable benefits. Employers must also submit a P11D(b), which declares the total Class 1A National Insurance contributions due on all reported benefits.

There are two ways to report benefits-in-kind: 

• Annually: Companies with fewer than 500 employees can submit the forms through HMRC’s PAYE online service. They must file them by July 6, following the end of the tax year.
• Monthly: Organizations with more than 500 employees must submit them monthly using payroll software that’s compatible with HMRC systems. Companies that file monthly don’t need to report benefits for every employee at the end of the year since they’re already in the HMRC payrolling system. 

It’s the employer's responsibility to declare all taxable benefits. Inaccurate P11D forms and late submissions are subject to penalties, extra tax benefit liabilities, and scrutiny from HMRC. 

Comply with international regulations and benefits

Eye-catching total rewards packages are an organization’s ticket to attracting and retaining top talent. But what’s standard in one country might be structured differently elsewhere, with unique tax rules, reporting requirements, and cultural expectations. To offer competitive and compliant BIKs in the U.K., you need a clear view of U.K. regulations. 

Oyster makes that easier by ensuring hiring and payroll compliance in more than 180 countries, including the United Kingdom. With Oyster ensuring global compliance, you can confidently deliver benefits that support your team and align with local laws, no matter where you hire. Book a demo to learn more.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.