What is a benefit in kind?

Benefits in kind (BIKs) are non-cash perks provided by your employer, which are excluded from your salary or wages – things like a company car, health insurance or a gym membership. And while it’s great to receive extra benefits beyond your regular pay, it’s important to know that many of them are still subject to benefit in kind tax. This means HMRC treats them as taxable income, which could affect your tax code and monthly pay. Let’s delve in.

Benefit in kind: what you need to know

A benefit in kind is any non-cash benefit an employer provides to an employee that isn’t included in their salary. Because these perks effectively increase your earnings, they may be taxed accordingly. Some common examples of BIKs include:

• Company cars: Especially those used for personal journeys
• Private medical insurance: A perk that can help with healthcare costs
• Interest-free loans: If your employer offers you an interest-free or low-interest loan over a certain threshold, it’s considered a BIK
• Subsidised accommodation: If your employer provides or contributes towards your housing

How are benefits in kind taxed?

Since BIKs increase the value of what you receive from your employer, they’re treated as part of your taxable income. Here’s how it works:

• Employers report BIKs to HMRC either through the P11D form or directly through payroll.
• HMRC calculates the taxable value of the benefit based on its worth and the tax rate that applies to you.
• Some BIKs also require National Insurance contributions, which employers typically cover.

Common examples of taxable and non-taxable benefits

Not all benefits are taxed the same way. Here’s a breakdown:

Taxable benefits:

• Company cars and fuel: Especially if the car is available for private use
• Private health insurance: A useful perk, but one that’s taxed.
• Gift vouchers: Since they have a monetary value, they’re taxable

Non-taxable benefits (exemptions):

• Workplace parking: Generally tax-free if it’s available to all employees
• Mobile phones for business use: If provided for work purposes, it’s usually exempt.
• Small gifts: Under the trivial benefits rule, small gifts (under £50) like birthday vouchers from your employer are tax-free

Impact of benefits in kind on your tax code

If you receive a taxable BIK, HMRC will adjust your tax code to ensure the correct amount of tax is collected. This means:

• You might see a reduction in your personal allowance, which could lead to more tax being deducted from your monthly pay.
• It’s important to check your tax code regularly to make sure it’s correct and you’re not overpaying or underpaying tax.

What employers need to know about benefits in kind

Employers have several responsibilities when offering BIKs, including:

• Reporting BIKs to HMRC: Either through payroll or via a P11D form
• Paying National Insurance: Some benefits require employers to contribute
• Keeping records: Accurate records are crucial for compliance and tax reporting

Why understanding benefits in kind Is important

For employees:

• Avoids unexpected tax bills
• Helps you make the most of your benefits package

For employers:

• Ensures compliance with HMRC regulations
• Helps you offer attractive benefits while managing tax liabilities effectively

Get expert help with your tax returns

Understanding benefit in kind tax means fewer surprises and better financial planning for both employees and employers. If you need help navigating BIKs or any other tax-related issues, RIFT Refunds is here to assist. Our experts can help ensure you’re not overpaying tax and that you’re getting the maximum tax refund possible.

Get in touch with Rift today and take the stress out of your tax return.