What is BIK (Benefit in Kind)?
- Richard Quilter
- Aug 27
- 3 min read
Updated: Oct 24
In the UK, employees often receive more than just their basic salary. Some are offered additional perks by their employer, such as company cars, salary sacrifice leases, private medical insurance, or gym memberships. These perks are known as Benefits in Kind (BIKs). While they may feel like a bonus, BIKs are subject to tax rules and can impact your overall take-home pay.
This article will explain what BIKs are, how they are taxed, and how they relate to salary sacrifice schemes.
Understanding BIK (Benefit in Kind)
A Benefit in Kind is any non-cash benefit provided to an employee by their employer that has a monetary value. HM Revenue & Customs (HMRC) considers these benefits part of an employee’s taxable income, and therefore they are subject to income tax and National Insurance contributions (NICs), either by the employee, employer, or both.
Common Examples of BIKs
Company cars
Fuel for private use
Private medical insurance
Low or interest-free loans
Accommodation
Childcare vouchers (legacy schemes)
Gym memberships
Cycle to work schemes
How BIKs Are Taxed
1. Valuation
Each BIK has a specific method for calculating its taxable value. For example, the taxable value of a company car depends on the vehicle’s list price, fuel type, and CO₂ emissions.
2. P11D Form
Employers report most BIKs annually using the P11D form, which details the cash equivalent value of all benefits provided to an employee during the tax year. This value is then added to the employee's income for tax purposes.
Some employers use payrolling benefits, meaning the BIK’s tax is deducted directly through payroll rather than via the P11D.
3. Taxation
Employees pay income tax on the BIK based on their personal tax band (e.g. 20%, 40%, or 45%). Employers usually also pay Class 1A National Insurance contributions (15%) on the value of the benefit.
BIK Exemptions and Allowances
Not all benefits are taxed. Some are either fully exempt or have special rules, including:
Workplace parking
Mobile phones (one per employee)
Certain relocation expenses (up to £8,000)
Employer-provided counselling services
Trivial benefits (e.g. small gifts under £50 that aren’t cash or cash vouchers)
Recent Changes and Trends
HMRC continues to tighten rules around BIKs to ensure fair taxation. Recent years have seen stricter valuation criteria for benefits like company cars, particularly those with high emissions. Conversely, electric vehicles have been incentivised with lower BIK rates (as low as 3% in 2025–26), making them a tax-efficient choice for employees and employers.
How BIKs Relate to Salary Sacrifice
Salary sacrifice is an arrangement where an employee agrees to give up part of their gross salary in return for a non-cash benefit, like a pension contribution, cycle-to-work scheme, or electric vehicle lease.
Because the employee’s gross salary is reduced, they pay less income tax and National Insurance, and the employer may also save on NICs.
Interaction Between Salary Sacrifice and BIK
Since 2017, HMRC has revised the rules under Optional Remuneration Arrangements (OpRAs) to limit tax advantages from salary sacrifice schemes. Under these rules:
If a BIK is provided through salary sacrifice, employees are taxed on the higher of:
The amount of salary sacrificed
The taxable value of the benefit
However, there are exemptions, including:
Pension contributions
Childcare vouchers (pre-2018 schemes)
Cycle to work
Ultra-low emission vehicles (CO₂ emissions < 75g/km)
Example:
If an employee gives up £4,000 of salary to get a benefit worth £3,000, they will be taxed on £4,000.
This rule change was designed to ensure that salary sacrifice arrangements don't create a tax advantage unless explicitly permitted.
Conclusion: BIKs and Salary Sacrifice in Perspective
Benefits in Kind are an important part of many UK employees' remuneration packages, offering valuable perks beyond salary. However, they are not "free"; many attract tax and can impact take-home pay.
With the government keeping a close eye on tax avoidance, particularly through salary sacrifice schemes, both employers and employees need to understand the implications of BIKs. While certain benefits like low-emission vehicles and pensions remain tax-efficient, others may trigger higher taxes if not managed properly.
If you're considering a BIK or entering a salary sacrifice arrangement, it’s advisable to:
Check the tax treatment of the benefit
Understand how it affects your tax code and payslip
Consult with your employer or a tax adviser to ensure it aligns with your financial goals
