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Summary
Benefits in kind (BIK) are non-cash perks provided by an employer that have a taxable value. Common examples include company cars, private medical insurance, and interest-free loans. HMRC treats these benefits as part of your taxable income, and tax is collected either through your tax code (increasing your PAYE deductions) or through the P11D reporting process.
How it works
The P11D system
Employers report benefits in kind to HMRC on form P11D after each tax year. HMRC then adjusts the employee’s tax code to collect the tax due. Some employers opt for “payrolling” benefits instead, deducting the tax directly through payroll each month.
How benefits are valued
Each type of benefit has specific HMRC valuation rules:
Company cars:
- Taxable value = List price x BIK percentage (based on CO2 emissions)
- Electric vehicles: 2% BIK rate (2025-26), rising to 3% in 2026-27
- Petrol/diesel: 15-37% depending on emissions
- Example: £40,000 electric car at 2% = £800 taxable benefit = £320 tax for a 40% payer
Private medical insurance:
- Taxable value = the cost to the employer of providing the cover
- Typically £500-£2,000/year depending on age and coverage level
Interest-free or low-interest loans:
- Taxable if over £10,000 at any point in the tax year
- Benefit = loan amount x (HMRC official rate - rate charged)
- Official rate: 2.25% (2025-26)
Other common benefits:
- Gym membership, mobile phone (if personal use), relocation expenses (over £8,000), accommodation
Tax calculation
The taxable value of all BIK is added to your gross salary for tax purposes:
Total taxable income = Salary + BIK value
Tax is charged at your marginal rate (20%, 40%, or 45%) on the BIK amount. The employer also pays Class 1A NI (15%) on the BIK value.
Worked example
Salary: £60,000, Company car (BIK value: £4,000), Private medical (£1,200)
- Total BIK value: £4,000 + £1,200 = £5,200
- Taxable income for code adjustment: £60,000 + £5,200 = £65,200
- Tax on BIK at 40%: £5,200 x 40% = £2,080 extra tax
- This is collected by reducing the employee’s tax-free allowance in their PAYE code
- Monthly impact: ~£173 less take-home pay
Inputs explained
- Gross salary — your annual salary before deductions
- Benefit type — select from company car, medical insurance, loan, etc.
- Benefit value — the HMRC-determined taxable value (or inputs to calculate it)
Outputs explained
- Total BIK value — the combined taxable value of all benefits
- Additional tax — the extra income tax due on the benefits
- Adjusted tax code — how your code changes to collect the BIK tax
- Net cost of benefits — what the perk actually costs you after tax
Assumptions & limitations
- BIK values are determined by HMRC rules, not by the subjective value to the employee. A company car you barely use still attracts the full BIK charge.
- Salary sacrifice for certain benefits (pension, electric cars, cycle to work) avoids BIK taxation entirely — these are handled differently.
- Trivial benefits under £50 per occasion are exempt from BIK (limit of £300/year for directors).
- The calculator uses standard BIK rates and does not cover every possible benefit type. Unusual benefits may have specific HMRC valuations.