We explain what a Benefit in Kind (BIK) is and outline some typical examples of a Benefit in Kind.

Question: 

“I have heard certain costs that are paid through a limited company are treated as a “Benefit in Kind” – can you explain what this is, what the tax implications are and what types of costs would typically be a Benefit in Kind?

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Answer:

A benefit in kind is normally a benefit or perk received by an employee or director from their employer which has not been taxed through their salary.

HMRC provide a guide here.

Classic examples of a benefit in kind include, but are not restricted to, the following:

  • Cheap or free loans

The tax implications for the individual is that the perk is taxed as if it were a salary, either via the annual self-assessment return or through adjustments to future years tax coding notices.

The employer will provide the employee with an annual P11d form which outlines the benefits during the tax year.

The business which provides the benefit must pay Class 1a national insurance by the 19th July after the end of the tax year in which the benefit was given to the employee.

For example a company pays £1,000 for private medical insurance on behalf of its director, of which the director does not contribute anything towards the cost.

Assuming the director has already used all their basic rates of tax (having maximised their salary/dividend position for the tax year in question) the director will be taxed personally on the £1,000 at the higher rate of 40% – the tax charge being £400.

The company will also pay the class 1a national insurance at 13.8% on the benefit being £138.

However, the company will receive corporation tax relief on the total of the benefit and the national insurance. This leaves a net cost to the company of providing the benefit of £910.40.