A benefit in kind (BIK) refers to non-cash rewards provided by an employer to their employees. These benefits, often referred to as perks or fringe benefits, range from the use of company cars to private health insurance, embodying additional compensation beyond the standard salary.
Taxable and Tax-Free Benefits
While many BIKs are exempt from tax, certain benefits, particularly those with personal use components, are taxable. Notable taxable benefits include:
- Company cars available for private use
- Personal clothing (excluding uniforms or safety gear)
- Fuel for private vehicle use
- Private health insurance
These benefits are subject to taxation because they are not deemed necessary for employment purposes alone. Taxable benefits are reported on a P11D form.
Rationale Behind Taxing BIKs
The taxation of BIKs by HMRC is aimed at preventing the substitution of salary with non-cash benefits, which could otherwise reduce tax liabilities. This approach ensures equity in the taxation process, capturing the full extent of an employee's remuneration.
High Income and Benefit in Kind
Individuals earning between £100,000 and £125,140 face a reduction in their tax-free Personal Allowance, potentially leading to a higher effective tax rate. To mitigate this, some opt for a salary sacrifice, choosing non-cash benefits in lieu of a higher salary to remain below the higher tax threshold.
Examples of Tax-Free BIKs
Numerous BIKs remain exempt from taxation, offering various perks without additional tax implications. Examples include:
- Work phones (with contracts between the employer and network provider)
- Meals provided in a staff canteen
- Business expenses charged to a company card
- Employer-funded training
- Counseling services for redundant employees
- In-house sports facilities
- Non-cash gifts for retirement, weddings, or departures (excluding cash gifts)
- Personal pension contributions
These tax-free benefits allow employers to offer additional value to employees without increasing their tax burden, fostering a more supportive and rewarding work environment.
