Navigating taxes, employee benefits, and compliance can feel overwhelming, especially when it comes to nuanced topics like Benefits in Kind (BIKs). Whether you’re a small business providing health insurance to a few employees or a larger company managing fleet-wide company cars, understanding BIKs is critical. This guide will break down what you need to know about BIKs, how they’re reported, and how to ensure your business remains compliant, while offering practical tips for your business.

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What is a benefit in kind?

Simply put, a Benefit in Kind (BIK) is any benefit or perk provided to an employee by their employer in addition to their salary, which may be subject to tax. Examples of BIKs include company cars, medical insurance, childcare, or vouchers. 

If these benefits are provided outside payroll, they often need to be reported to HMRC, and employers may need to pay Class 1A National Insurance contributions. Even payrolled benefits may require reporting to calculate the correct Class 1A contributions on an annual basis. At the beginning of 2024, the Government announced that it would make it mandatory for employers to pay benefits in kind through payroll, which will take effect from April 2027 onwards. 

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Why a proactive approach to BIKs is important

Failing to report taxable benefits can result in fines or penalties. However, understanding BIKs also helps employers optimise employee offerings and manage tax obligations. They present a chance to boost employee satisfaction and attract top talent. Whether providing valuable health benefits or company cars, BIKs serve a dual purpose: supporting employees and reinforcing your company’s vision and values.  

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When and how to file a P11D Form

For the time being, the P11D form remains the cornerstone of reporting non-payrolled benefits in kind to HMRC. 

Two crucial forms: P11D and P11D(b)

A common misconception is that the P11D process involves just one form. In reality, there are two key documents:

• The P11D form: this is an individual report for each employee or director who receives non-payrolled benefits during the tax year. You must complete a separate P11D for every relevant person.
• The P11D(b) form: this is the employer's summary declaration. It totals up the value of all the benefits declared on the individual P11D forms and, crucially, is where you calculate the total amount of Class 1A National Insurance Contributions (NICs) your company owes. You must submit a P11D(b) even if you have filed P11Ds but have no Class 1A NICs to pay.

Key deadlines:

Timing is critical when it comes to submitting your benefit in kind information. Failing to meet these statutory deadlines can result in significant penalties from HMRC. For the 2024-25 tax year, the key dates are:

• 6 July 2025: this is the final day for HMRC to receive your completed P11D and P11D(b) forms. It is also the deadline for providing your employees with their copy of the form.
• 19 July 2025: deadline for payment of Class 1A NICs if you are paying by cheque through the post.
• 22 July 2025: The final deadline for clearing payment of your Class 1A NICs bill if you are paying electronically.

HMRC may charge you a penalty of £100 per 50 employees for each month your P11D(b) is late.

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The phasing out of the P11D: a new era of reporting

For many years, the P11D form has been the main method for reporting BIKs. While it remains relevant for the near future, as previously mentioned, some changes are on the horizon. The move to compulsory payrolling of benefits from April 2027 aims to make the system simpler by combining the tax on benefits with the employee’s regular pay cycle. However, at present, this new policy is in draft form, and updates will be provided from Autumn 2025 onwards, helping us evaluate whether it will indeed be a more straightforward process.

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Common Types of Benefits in Kind  

1. Medical and Dental Insurance

Medical and dental insurance is one of the most commonly offered BIKs. However, not all provisions are taxable. Examples of tax-exempt health-related benefits include:

• Annual medical checks or health screenings.
• Eye tests for employees requiring frequent screen use.
• Work-related treatments aiding an employee’s return to work (up to £500).  

If the benefit doesn’t meet exemptions or is not payrolled, it must be reported via a P11D form, and Class 1A NICs are payable by employers.  

2. Company Cars  

Company cars used for both business and personal purposes are taxable BIKs. The taxable amount depends on the car’s CO2 emissions, fuel type, and whether the employee contributes towards its upkeep. You can use HMRC’s tax calculator to calculate the taxable value.  

3. Childcare and Vouchers  

Employer-provided childcare can qualify as a tax-free benefit under certain conditions, such as being registered childcare. Vouchers, however, may require reporting under different rules depending on the scheme specifics.  

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Key Considerations for Employers  

Tax Exemptions  

It’s essential to understand which benefits are exempt from taxation to avoid unnecessary reporting or incorrect submissions. Exemptions can significantly reduce both admin time and costs for businesses. Office equipment, phones, job-related accommodations, subsidised meals and counselling are all examples of benefits that are usually exempt from BIK.. However, each point has a caveat, so it’s important to discuss this with your accountant.

Another particularly useful, yet often underutilised, exemption is for ‘trivial benefits’. These are small, non-cash gifts to employees, such as a bottle of wine or a festive hamper that costs £50 or less and are not a reward for performance. For directors of close companies, there is an annual cap of £300 on the value of trivial benefits they can receive.

Payrolling Benefits in Kind  

Payrolling benefits allows for the tax on those benefits to be collected in real-time through the employee’s monthly PAYE. While this will become mandatory in 2027, employers can voluntarily adopt this system now. This may help provide a smoother transition and reduce administrative burden later down the line. However, even when payrolling BIKS is used, it’s crucial to report Class 1A NICs annually to HMRC.  

Salary Sacrifice Arrangements

Certain benefits like medical insurance or childcare can be provided through salary sacrifice schemes, potentially offering tax advantages for both employers and employees. This method for childcare allows employees to trade part of their salary for tax-free childcare vouchers, decreasing their taxable income and leading to reduced income tax and national insurance contributions. Always verify adherence to current HMRC regulations, as they may restrict specific arrangements.  

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Steps to Ensure Compliance with BIK Regulations  

1. Audit employee benefits  

Regularly review the benefits you provide to determine their taxable status. This ensures you’re on top of reporting requirements and taking advantage of any allowable exemptions.  

2. Stay updated on HMRC changes  

Rules and exemptions regarding BIKs can change over time. For example, the introduction of the Economic Crime and Corporate Transparency Act 2023 brings additional compliance requirements for some businesses by 2025.  

3. Seek professional guidance  

Uncertain about whether a benefit is taxable or how to complete a P11D form? Consulting an accountant or tax professional is often the best way to ensure compliance while managing your liabilities effectively. You can contact us here.

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