Benefit in kind or BIK as it’s also known, refers to any benefits that an employee or director receives from their company, in addition to their salary or wages. BIKs can include non-cash benefits or perks such as company cars private health insurance subsidised meals.
One of the core features of receiving a benefit in kind is that it provides an additional level of compensation outside of salary. This can in turn help attract and retain employees. For example, as part of many compensation packages employers offer company cars as a perk to the employee. Yes, the car may be required for use during business hours, however, the employee has full access to the vehicle in their evenings weekends and during their time off. For some, this additional benefit has a considerable value, in that they do not have to purchase their own vehicle for commuting to work or personal use. This additional benefit can help to recruit new staff as it makes the role more financially attractive, beyond salary alone.
This article explains benefit in kind in detail and provides some further guidance around taxable and non-taxable benefits in kind.
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What is benefit in kind?
Benefit in kind (BIK) are non-cash assets or services provided by your employer at no cost or subsidised cost to you. These assets would be considered perks or benefits to you personally and could include: Company cars, healthcare, medical insurance, accommodation, meals, loans or assets used a significant amount of time for personal use such as home phones. Under the definition of benefit in kind, non-business travel or entertainment expenses paid for by the company can also become taxable.
How to identify benefit in kind
You may have heard the term “wholly and exclusively for the purposes of your business” mentioned by your accountant or your accounting team many times over. I know I have. If you have received a benefit from your business that does not meet the “wholly and exclusively for the purposes of your business” criteria, then it is likely that this is a benefit in kind and will be treated as such for taxation purposes.
Purpose of taxing benefit in kind
Even though you don’t see the cash in your bank for some benefits, they are often in lieu of a higher salary. The taxman will always want their share and because of this benefits in kind are taxed to ensure you or your employer don’t replace salary with un-taxed benefits.
Who is responsible for managing benefit in kind?
If you are an employee and are paid via PAYE, then your employer is responsible for the management and reporting of any benefits in kind you receive. They will inform the HRMC about any benefits you receive by either including it in their payroll or by completing a P11D form. A P11D form must be submitted to the HMRC by 6th July following the end of the relevant tax year. As an employee, it is important to note that any additional tax or national insurance payable on benefits in kind will be taken directly from your pay. Therefore you may find that you are left with less in your pay each month for certain benefits: especially when considering vehicles.
Benefit in kind for self-employed people
If you are self-employed there is no legal distinction between you and your company. If you use something for both business and personal reasons you can only claim for the allowable business expenses.
For example: if you have a mobile phone, the bills should be split into personal and business. If you spend £200 per year on your phone and £50 of this is for personal use, then only the £150 used for business purposes can be claimed as business expenses.
Reporting benefit in kind
One of the most common questions for employees who receive benefits in kind is “how do I report them”. Well, the good news for you is that your company will do this on your behalf. Each year the company will submit a P11D form to the HMRC for you. They’ll also supplement this with a P11D(b) form which summarises all P11D forms supplied across the company. It includes the list of all taxable benefits in kind the company has provided and any National Insurance Contributions (NICs) that relate to these. As well as personal tax implications, NICs are payable by companies on the benefits in kind provided in a tax year. The rate to be paid towards NICs is 13.8% of their determined value.
What benefits are tax-free?
When it comes to benefit in kind, there is some good news for us mere employees. There are some benefits which are exempt from taxation and national insurance contributions.
- Pensions
- Mobile Phones
- Car Parking
- Childcare
- Staff event allowance
- Living accommodation
The list of tax-free benefits is not exhaustive and where applicable, they must fall into the “wholly and exclusively for the purpose of business” category. Alternatively, if the benefit is considered “trivial” (under £50) in value or is categorised as tax-free by the HMRC, these may not cause a taxable situation.
Company car tax – Benefit In Kind (BIK)
The most searched-for Benefit in Kind is related to company car tax. Those of us who are provided with a company car will be liable to pay Benefit in Kind (BIK). The level of BIK that we must pay depends on a number of factors, primarily the value of the car, its CO2 emissions (which is used to determine its Benefit-in-Kind Tax band) the type of fuel used, and the employee’s personal tax rate.
Low CO2 emissions are crucial to reducing BIK tax liability, and recently many company car drivers have switched to hybrid or electric vehicles to minimise their benefit in kind liability. The other major factor is the cost of the vehicle.
All of the major vehicle manufacturers provide considerable resources and support for those company car drivers looking to make an informed decision on their choice of a company car. For example, BMW has put together a very comprehensive company car tax guide that will many of those who are choosing a BMW to understand their tax implications.
Benefit In Kind tax bands for cars first registered after 6 April 2020
| CO2 emissions (g/km) | Electric range (miles) | BIK Rate (%) – Petrol, Electric, RDE2 Diesel | BIK Rate (%) Non-RDE2 Diesel |
|---|---|---|---|
| 0 | 2 | ||
| 1-50 | 130+ | 2 | |
| 1-50 | 70-129 | 5 | |
| 1-50 | 40-69 | 8 | |
| 1-50 | 30-39 | 12 | |
| 1-50 | 14 | ||
| 51-54 | 15 | ||
| 55-59 | 16 | ||
| 60-64 | 17 | ||
| 65-69 | 18 | ||
| 70-74 | 19 | ||
| 75-79 | 20 | 24 | |
| 80-84 | 21 | 25 | |
| 85-89 | 22 | 26 | |
| 90-94 | 23 | 27 | |
| 95-99 | 24 | 28 | |
| 100-104 | 25 | 29 | |
| 105-109 | 26 | 30 | |
| 110-114 | 27 | 31 | |
| 115-119 | 28 | 32 | |
| 120-124 | 29 | 33 | |
| 125-129 | 30 | 34 | |
| 130-134 | 31 | 35 | |
| 135-139 | 32 | 36 | |
| 140-144 | 33 | 37 | |
| 145-149 | 34 | 37 | |
| 150-154 | 35 | 37 | |
| 155-159 | 36 | 37 | |
| 160-164 | 37 | 37 | |
| 165-169 | 37 | 37 | |
| 170+ | 37 | 37 |
Keep your receipts
By law, your company has to determine what are valid and invalid expense claims. Where you have legitimate business expenses, it is incredibly important to record these as expenses, including the appropriate receipts. This will help you ensure you are not taxed on legitimate expenses.
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