Benefits in Kind Tax for Employees

Managing employee tax correctly is essential for any business, and benefits in kind (BIKs) are one of the areas where companies most commonly fall short. At Hysons, we regularly support businesses with company tax returns and planning and BIK reporting is a recurring theme. This guide explains what you need to know.

What Are Benefits in Kind?

Benefits in kind are non-cash workplace benefits provided by employers. Although separate from salaries, HMRC classes them as taxable income, and the responsibility for reporting them sits with the employer.

Common examples include company cars, employer-provided accommodation, and private medical insurance. Staying across what qualifies as a BIK is essential, particularly as HMRC's reporting requirements continue to evolve.

How Do Benefits in Kind Affect Employees?

The taxable value of a BIK is added to an employee's overall earnings for annual tax calculations. This means PAYE tax codes can be affected, and employees may find themselves pushed into a higher tax bracket on a portion of their income. This is particularly relevant for anyone who is both employed and self-employed, where total income across all sources needs to be considered carefully.

Employers can manage BIK reporting through payroll or by requiring staff to complete P11D forms annually to calculate any additional tax due. Either way, employees should always be aware of the total value their BIKs add to their earnings.

What Is Changing for Benefits in Kind from April 2027?

From April 2027, HMRC is introducing mandatory payrolling of most benefits in kind. This will move reporting away from annual P11D forms and into real-time payroll, meaning Income Tax and Class 1A National Insurance on BIKs will be reported each pay period rather than at year end. A second phase from April 2028 will bring most remaining benefits into the regime. It is worth noting that employment-related loans and employer-provided accommodation are exempt from mandatory payrolling and will continue to require P11D reporting for the foreseeable future.

This is a significant change to how BIKs are administered. Businesses that currently rely on P11D forms will need to ensure their bookkeeping and payroll processes are updated ahead of the April 2027 deadline.

How Can an Accountant Help With Benefits in Kind?

Working with an accountant is the most reliable way to ensure BIKs are handled correctly and tax-efficiently. At Hysons, our support includes:

• Ensuring both employers and employees fully understand the tax obligations associated with BIKs.
• Reviewing employee benefit packages as part of our bookkeeping services to advise on taxable values and any recent regulatory updates.
• Assisting with P11D preparation and advising on the transition to mandatory payrolling ahead of April 2027.

Missing BIK reporting obligations can lead to compliance issues and potential fines from HMRC. Taking a proactive approach now, particularly with the 2027 changes on the horizon, is the right time to get your processes in order.

To find out how Hysons can support your business with benefits in kind and wider tax planning, get in touch with our team.