Understanding benefits in kind for employers
A guide to benefits in kind for employers: what counts, what it costs, and how to report them to HMRC.
Written by Naomi Lai— Small business & finance writer. Read Naomi's full bio
Published Wednesday 23 September 2026
Table of contents
Key takeaways
- A benefit in kind is a non-cash perk for employees with a monetary value, and most are taxable unless HMRC exempts them.
- If you offer taxable perks, you'll usually report them and pay employer Class 1A National Insurance at 15% on the taxable value.
- You can report benefits after the tax year on a P11D and P11D(b), or you can payroll them and collect the tax in real time.
- Payrolling benefits in kind becomes mandatory in phases from 6 April 2027 and 6 April 2028, so it's worth preparing your processes now.
What are benefits in kind?
A benefit in kind (BIK) is a non-cash perk with a monetary value that you give an employee on top of, or instead of, their salary. These perks are sometimes called fringe benefits, and as a benefits in kind employer, you're responsible for working out their value and, in most cases, reporting them.
Most benefits in kind are taxable unless HMRC specifically exempts them. So a good starting point is to list every perk you provide and check which ones count. GOV.UK sets out the full picture in its guidance on expenses and benefits for employers.
Common examples of benefits in kind
Plenty of everyday perks count as taxable benefits, and knowing your own benefits in kind list makes reporting far simpler. Common taxable examples include:
- company cars available for private use
- private medical and dental insurance
- interest-free or low-interest loans above the HMRC threshold
- living accommodation provided for an employee
- gym memberships and similar personal perks
- non-business travel and entertainment you pay for
The list above covers the perks larger employers offer most often. Each one has its own valuation rules, so it helps to confirm the treatment of anything unusual before the tax year ends. If you offer a mix of perks across departments, keeping a single shared record of who receives what saves time when you come to value and report them.
Which benefits are tax-free?
Some perks are exempt, which means you don't pay tax or report them in the same way. Knowing these can save you time and cut your reporting workload. Common tax-free benefits include:
- workplace pension contributions you make for employees
- trivial benefits of £50 or less that meet HMRC's conditions
- certain approved childcare arrangements
- one mobile phone per employee
- work-related training that supports the role
- cycle-to-work equipment provided under an approved scheme
- free or subsidised meals in a staff canteen
Trivial benefits have strict conditions. To qualify, the perk must cost £50 or less including VAT, must not be cash or a cash voucher, must not reward work or performance, and must not be written into the employee's contract. You can check the details in the GOV.UK guidance on trivial benefits.
How benefits in kind are taxed
Each taxable perk is given a cash-equivalent value, and that value is treated much like extra pay. The employee pays income tax on it, and HMRC may adjust their tax code so the right amount is collected through the year. Understanding company benefits tax helps you explain to your team why a perk affects their take-home pay.
Company cars work a little differently. Instead of a simple cash value, they're valued using the car's list price and its CO2 emissions, so a lower-emission car usually carries a smaller tax charge. This matters when you're choosing a fleet, because the model you pick directly affects both the employee's tax and your own costs. Employees can review how their perks are taxed in the GOV.UK guidance on tax on company benefits.
How much do benefits in kind cost employers?
On top of the tax your employees pay, you as the employer usually pay Class 1A National Insurance on the taxable value of most benefits. For 2026 to 2027, the Class 1A rate is 15%.
Here's a plain worked example. Say you give an employee private medical insurance with a taxable value of £1,000 for the year. Your Class 1A National Insurance would be 15% of £1,000, which is £150. If you provided the same benefit to 30 employees, your total Class 1A cost would be £4,500. Working this out early helps you budget accurately and decide which perks give the best value across a larger workforce.
How to report benefits in kind to HMRC
You have two main routes for telling HMRC about taxable perks. Currently, you can use whichever suits your processes.
The first route is reporting P11D benefits in kind after the tax year ends. Under this route, you complete a form P11D for each employee who received benefits, plus a form P11D(b) to report the employer's Class 1A National Insurance. You must submit both by 6 July after the tax year ends and pay the Class 1A National Insurance by 22 July if you pay electronically.
The second route is payrolling the benefits. You register with HMRC before the tax year starts, then report the cash-equivalent value through your payroll each pay period, so the tax is collected in real time. This can reduce your year-end admin and give employees a clearer view of what they owe.
What's changing: Mandatory payrolling of benefits
Payrolling benefits in kind is currently a choice, but that's changing. HMRC is making it mandatory in phases applied to certain benefits from 6 April 2027 and most other benefits from 6 April 2028. The change was originally planned for April 2026 and has since been delayed.
Once the rules take effect, payrolling will replace most P11D reporting for the benefits it covers. To prepare, review the perks you offer, check that your payroll can handle real-time benefit reporting, and register to payroll voluntarily so your team is comfortable with the process well before it becomes compulsory.
Benefits in kind employer checklist
Staying compliant is easier when you follow a clear, repeatable process each year. This benefits in kind employer checklist helps you keep on top of your obligations across a larger team.
- Identify every reportable perk you provide and separate taxable benefits from exempt ones.
- Work out the cash-equivalent value of each taxable benefit, using the correct valuation rules for cars and loans.
- Choose your reporting route, either P11D after year-end or payrolling through your payroll.
- Register with HMRC before the tax year starts if you plan to payroll benefits.
- Report and pay on time, meeting the 6 July filing deadline and the 22 July payment deadline where P11D applies.
- Keep clear records of the benefits you provide and the values you report, so you can answer any HMRC queries.
Good record keeping and reliable payroll software make each of these steps quicker, especially when you're managing perks for more than 20 employees.
Manage benefits in kind and payroll with Xero
Handling benefits in kind across a growing team takes accurate records and smooth payroll, and Xero brings both together in one place. Xero's cloud accounting and payroll tools help you track the perks you provide, run pay accurately, and keep the records you need for HMRC so month-end and year-end reporting stay under control.
You can explore more employer topics in the small business guides library. Ready to simplify your admin?
FAQs on benefits in kind for employers
These answers cover the questions employers ask most often when setting up and reporting benefits in kind.
Is a benefit in kind added to salary?
No, a benefit in kind isn't paid as extra cash salary. It's given a cash-equivalent value that's taxed alongside pay, so it affects the employee's tax rather than their gross salary figure.
How much do benefits in kind cost employers?
Your main direct cost is employer Class 1A National Insurance at 15% on the taxable value of most benefits. You may also carry admin and provider costs for running each perk.
What are examples of benefits in kind?
Typical taxable perks include company cars, private medical insurance, low-interest loans, living accommodation, and gym memberships. Trivial perks of £50 or less can be exempt if they meet HMRC's conditions.
Do you need to tell HMRC about benefits in kind?
Yes, you must report most taxable benefits, either on a P11D and P11D(b) after the tax year or through payroll if you've registered to payroll them. Exempt benefits don't need reporting in the same way.
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