What are benefits in kind for employees?
Answered 17 March 2026
Here is a comprehensive answer on benefits in kind (BiK) for employees, based solely on the available sources:
Benefits in Kind for Employees
What the law says
Definition and scope Benefits in kind (BiK) are goods and services provided to an employee for free or at greatly reduced costs. They are distinct from cash earnings and are taxed as employment income under the benefits code in Part 3, Chapters 3–10 of ITEPA 2003.
The benefits code covers the following categories (per Section 63(1) ITEPA 2003):
- Chapter 3 – Expense payments
- Chapter 4 – Vouchers and credit cards
- Chapter 5 – Provision of living accommodation
- Chapter 6 – Cars, vans and related benefits
- Chapter 7 – Loans
- Chapter 8 – Notional loans in respect of shares
- Chapter 9 – Disposal of shares for more than market value
- Chapter 10 – Residual liability to charge for benefits generally
Universal application (from April 2016) The Finance Bill 2015 abolished the £8,500 threshold by repealing Chapter 11 of Part 3 of ITEPA 2003. This means that from April 2016, all employees are taxed on their BiKs and expenses in the same way. Section 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992) was also amended to align employer National Insurance Contributions (NICs) treatment with income tax.
Exemptions
- Exemptions for ministers of religion have been retained (ss.290A and 290B ITEPA 2003), with a new exemption for ministers earning less than £8,500.
- Carers are exempt from income tax on board and lodging provided in the home of the person they care for, and the employer is exempt from NICs on this BiK.
NICs on BiKs Class 1A NICs apply to benefits in kind chargeable to income tax under ITEPA 2003, unless they already attract Class 1 or Class 1B NICs liability or are otherwise exempt. Common examples include:
- Assets transferred to the employee (e.g. property and goods)
- Assets placed at the employee's disposal (e.g. use of an aircraft or boat)
- Private medical insurance
- Services (e.g. free use of a private club or telephone line)
- Interest-free and low-interest loans (s.173 ITEPA 2003)
- Living accommodation (s.97 ITEPA 2003)
- Company cars for private use (s.114 ITEPA 2003)
- Company vans for private use (s.154 ITEPA 2003)
There is no exhaustive statutory list — the potential exists for anything an employer provides to, or for, their employees to be a benefit.
HMRC Guidance / Practice
Reporting obligations Employers are legally obliged to provide their employees with details of relevant benefits in kind received in a tax year. From April 2016, a P11D (rather than a P9D) is the appropriate form for reporting BiKs.
Flexible benefit plans and salary sacrifice Many employers offer flexible benefit plans where employees choose from a menu of BiKs (e.g. company cars, childcare, private health insurance, additional pension contributions, or extra annual leave). These often involve an element of salary sacrifice, where the employee gives up part of gross pay in return for additional BiKs.
Optional remuneration arrangements (from 6 April 2017) From 6 April 2017, the Income Tax and NICs advantages of providing BiKs through salary sacrifice or optional remuneration arrangements were largely withdrawn. Employees can no longer pay less Income Tax and NICs compared to being paid entirely in cash through such arrangements.
PAYE Settlement Agreements (PSAs) Employers can enter into a PSA with HMRC to pay the income tax and Class 1B NICs on minor benefits in kind on behalf of their employees. This relieves employees of their personal liability on those benefits and reduces administrative burden.
What BiKs are NOT BiKs are specifically excluded from certain calculations. For example, they do not count as "employee costs" for land remediation relief purposes — only monetary salaries, wages, secondary Class 1 NICs, and pension contributions qualify.
Citation sources
Income within the benefits code is treated as earnings taxable as employment income (EIM00510). Section 63(1) ITEPA 2003 lists the types of income included in the benefits code in Part 3 Chapters 3 to 10 ITEPA 2003: Chapter 3 Expense payments (EIM20600) Chapter 4 Vouchers and credit cards (EIM16000) Chapter 5 Provision of living accommodation (EIM11300) Chapter 6 Cars, vans and related benefits Chapter 7 Loans (EIM26100) Chapter 8 Notional Loans in respect of shares (Share Schemes Manual (SSM))
From 6 April 2017, the Income Tax and NICs advantages where benefits in kind are provided through arrangements under which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000. This change has been made to redress the advantage that use of these arrangements allowed. Employees would pay less Income Tax and NICs compared to what they would have paid if they’d been
Benefits in kind (BiK) are goods and services provided to an employee for free or at greatly reduced costs. Employers are legally obliged to provide their employees details of relevant benefits in kind they have received in a tax year. Legislation was introduced in the Finance Bill 2015 to amend ITEPA 2003 to abolish the £8,500 threshold by repealing chapter 11 of part 3 of ITEPA 2003 (exclusion of lower paid employments from parts of the benefit code). This means that from April 16 all employee
Many employers have introduced flexible benefit plans for their employees. Broadly speaking, employees are given the opportunity to choose the benefits in kind they would like to receive from a menu of possibilities. Many schemes give each benefit a monetary value which usually bears no particular relationship to its taxable value under the benefits code (see EIM21101). Benefits in kind which may be included in such schemes include company cars, childcare provision, private health insurance, add
The relevant employee costs are those paid to, or in respect of, directors or employees directly and actively engaged in the relevant land remediation. This includes: all salaries, wages, perquisites and profits whatsoever, paid to directors or employees, but does not include benefits in kind, secondary Class 1 national insurance contributions paid by the company, and contributions paid by the company to any pension fund (within the meaning of ICTA88/S231A (4)) operated for the benefit of dir
Class 1A NICs legislation does not specify which benefits in kind are liable for Class 1A NICs. Instead, it provides for any general earnings chargeable to income tax under Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) to attract Class 1A NICs liability unless the general earnings: already attract either a Class 1 or Class 1B NICs liability; or are otherwise exempt from Class 1A NICs. The main benefits which attract Class 1A NICs liability are charged to tax under the benefits code (C
A PAYE Settlement Agreement (PSA) is a statutory arrangement with HMRC under which an employer can pay the income tax liability and Class 1b National insurance on minor benefits in kind and expenses payments given to their employees. Income Tax (Earnings and Pensions) Act 2003 Chapter 1 Part 11, Pay As You Earn Chapter 5 contains the regulations for PSAs. Employers with a PSA become liable for the income tax and NICs payable and their employees are relieved of liability on the benefits and expen