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Benefits in Kind (BIK) Last modified: July 15, 2026

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What are Benefits in Kind (BIK)?

Benefits in Kind (BIK) are non-cash benefits or perks that an employer provides to employees in addition to their salary. Because these benefits have a financial value, many are considered taxable and must be reported to HM Revenue & Customs (HMRC).

Rather than receiving extra pay, employees receive something of value, such as the use of a company car, private medical insurance or employer-provided accommodation. These benefits can enhance an employee’s overall remuneration package and are often used by employers to attract, reward and retain talent.

With the introduction of mandatory payrolling for most Benefits in Kind from April 2027, employers should review their current employee benefits and payroll processes to ensure they are prepared for the new reporting requirements. This proactive approach can help reduce compliance risks and provide employees with more accurate, real-time tax reporting.

BENEFITS IN KIND

  • What do Benefits in Kind mean in Payroll?

    From a payroll perspective, Benefits in Kind are taxable benefits that may need to be reported to HMRC and included in an employee’s tax calculations.

    Historically, most employers reported Benefits in Kind annually, using P11D forms. However, many employers now choose to payroll benefits, meaning the tax is collected through employees’ monthly pay instead of after the tax year.

    From April 2027, the government plans to make the payrolling of most Benefits in Kind mandatory, making it even more important for employers to understand their obligations.

  • Common examples of Benefits in Kind include:

    • Company cars
    • Private medical insurance
    • Interest-free or low-interest loans
    • Living accommodation provided by the employer
    • Gym membership
    • Assets transferred to employees
    • Some travel or relocation expenses
    • Fuel provided for private use

    Some benefits are exempt from tax, while others have specific rules and reporting requirements.

BENEFITS IN KIND

Why do employers offer Benefits in Kind?

Benefits in Kind are often used as part of a wider employee benefits strategy to improve recruitment, retention and employee wellbeing.

A competitive benefits package can help businesses:

  • Attract skilled candidates in a competitive job market.
  • Improve employee satisfaction and engagement.
  • Support employee health and wellbeing.
  • Enhance overall reward without relying solely on salary increases.
  • Strengthen employer branding and employee experience.

While valuable for employees, these benefits should always be balanced with appropriate payroll reporting and tax compliance.

BENEFITS IN KIND

  • What happens if Benefits in Kind are reported incorrectly?

    Incorrect reporting can lead to:

    • HMRC penalties
    • Underpaid tax
    • Unexpected tax bills for employees
    • Incorrect national insurance payments
    • Additional payroll administration

    Regular reviews of employee benefits and payroll processes can help businesses stay compliant.

    Why accurate Benefits in Kind reporting matters

    • Ensure employees pay the right amount of tax
    • Reduce unexpected tax code changes
    • Improve compliance with HMRC requirements
    • Build confidence in payroll accuracy

  • How can employers prepare for mandatory payrolling

    With mandatory payrolling approaching, employers should begin reviewing their payroll processes well before the changes take effect.

    Key steps include:

    • Audit all employee benefits to identify which are taxable
    • Review current P11D reporting processes and understand how these will change
    • Ensure payroll software supports payrolling of Benefits in Kind
    • Work with HR, finance and payroll teams to maintain accurate employee benefit records
    • Update internal policies and procedures to reflect the new reporting requirements
    • Communicate upcoming changes to employees so they understand how their tax may be affected
    • Seek professional payroll or HR advice if you’re unsure about your reporting obligations

    Taking proactive steps now can reduce compliance risks and make the transition to mandatory payrolling much smoother.

  • Who needs to report Benefits in Kind?

    Any employer that provides taxable benefits in responsible for reporting them correctly to HMRC.

    This includes businesses of all sizes, from SMEs through to large organisations. Responsibility often sits across multiple departments, including:

    • Payroll
    • HR
    • Finance
    • Reward and Benefit teams

    Strong communication between these teams helps ensure benefits are accurately recorded and reported.

  • How are Benefits in Kind calculated?

    The taxable value of a Benefit in Kind depends on the type of benefit provided. HMRC has different valuation rules for different benefits.

    For example:

    • Company cars are taxed based on the vehicle’s list price, CO2 emissions and fuel type.
    • Private medical insurance is usually taxed on the amount the employer pays for the policy.
    • Employer loans may become taxable if they exceed HMRCs interest-free loan threshold.
    • Living accommodation has it’s own valuation rules depending on the property’s value and the circumstances in which ir is provided.

  • Need support managing Benefits in Kind?

    As payroll legislation continues to evolve, keeping employee benefits compliant has never been more important. Whether you’re preparing for mandatory payrolling, reviewing your current payroll processes or looking for ongoing payroll support, our specialists can help you stay compliant, reduce administrative burden and ensure accurate reporting to HMRC.

    Want to find out more?

    Book a call

Your Questions Answered

Everything you need to know about Benefits in Kind

  • Are all Benefits in Kind taxable?Reveal

    No. Some benefits are exempt from tax or covered by specific HMRC exemptions. Whether a benefit is taxable depends on the type of benefit and how it is provided. Employers should always check the relevant HMRC guidance before assuming a benefit is exempt.

  • Do employees pay tax on Benefits in Kind?Reveal

    Yes, in most cases. Employees usually pay Income Tax on the value of taxable Benefits in Kind. Employers may also have National Insurance obligations depending on the type of benefit provided.

  • What is payrolling Benefits in Kind?Reveal

    Payrolling Benefits in Kind means collecting the tax due through an employee’s regular payroll, rather than reporting the benefit after the end of the tax year using a P11D. This provides more accurate, real-time tax collection.

  • What changes are coming in April 2027?Reveal

    The UK Government plans to make the payrolling of most Benefits in Kind mandatory from April 2027. This will replace the current system for most taxable benefits and reduce reliance on annual P11D reporting.

  • Who is responsible for reporting Benefits in Kind?Reveal

    The employer is responsible for accurately identifying taxable benefits, reporting them correctly to HMRC and ensuring any required tax and National Insurance contributions are paid.

  • Is a salary sacrifice scheme a Benefit in Kind?Reveal

    Not always. Salary sacrifice is an arrangement where an employee gives up part of their salary in exchange for a benefit. Depending on the type of benefit and current HMRC rules, the benefit may still be treated as a taxable Benefit in Kind. Some salary sacrifice arrangements have specific tax advantages, while others are taxed under the Optional Remuneration Arrangements (OpRA) rules.

Where to find out more A collection of hand-picked useful resources for Benefits in Kind from impact HR and beyond

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