If your employer provides you with perks beyond your salary — a company car, private medical insurance, a gym membership, or an interest-free loan — these are classified as Benefits in Kind (BIKs). Your employer reports them to HMRC on a form called the P11D, and you pay income tax on their value. Understanding how BIK tax works can help you decide which benefits are genuinely worth taking.
What Is a P11D?
The P11D is a form your employer submits to HMRC after the end of each tax year (by 6 July) listing all benefits and expenses provided to each employee. You receive a copy showing the taxable value of each benefit. HMRC then adjusts your tax code to collect the tax through PAYE in the following year — or, if your employer payrolls benefits, the tax is deducted from your pay each month.
How BIK Tax Is Calculated
The basic formula for most benefits is:
Cash equivalent value of the benefit x your marginal tax rate = annual tax payable
The “cash equivalent” is not necessarily what the benefit costs your employer — HMRC has specific rules for valuing each type of benefit. For example, a company car’s taxable value is based on its list price and CO2 emissions, not its second-hand market value.
Common Benefits and Their Tax Cost (2025-26)
The table below shows the annual tax cost for a basic rate (20%) and higher rate (40%) taxpayer on common P11D items:
| Benefit | Cash Equivalent | Tax at 20% | Tax at 40% |
|---|---|---|---|
| Company car — EV, £30,000 list price (3% BIK) | £900 | £180/yr | £360/yr |
| Company car — petrol, £30,000 list price (27% BIK, 120g CO2) | £8,100 | £1,620/yr | £3,240/yr |
| Private medical insurance (single) | £1,000 | £200/yr | £400/yr |
| Private medical insurance (family) | £2,500 | £500/yr | £1,000/yr |
| Gym membership | £600 | £120/yr | £240/yr |
| Interest-free loan of £10,000 | £225 | £45/yr | £90/yr |
| Company van (with private use) | £3,960 | £792/yr | £1,584/yr |
Notes: The interest-free loan BIK is calculated using HMRC’s official rate (2.25% for 2025-26) on the average loan balance. Loans of £10,000 or less are exempt unless your total beneficial loans exceed £10,000. The company van flat rate is £3,960 for 2025-26 (£0 for zero-emission vans).
Worked Example: Higher-Rate Taxpayer with Multiple Benefits
David earns £65,000 and receives the following benefits from his employer:
| Benefit | Details | Cash Equivalent |
|---|---|---|
| Company car | Tesla Model 3, P11D value £35,000, 0g CO2 (3% BIK) | £1,050 |
| Private medical insurance | Family cover | £1,500 |
| Total BIK value | £2,550 |
David’s entire BIK value falls within the higher rate band (his salary already exceeds £50,270):
- Income tax on BIKs: £2,550 x 40% = £1,020 per year (£85/month)
- His employer also pays Class 1A NI at 15%: £2,550 x 15% = £382.50
If David had a petrol company car instead (same £35,000 list price, 130g CO2, BIK rate 29%):
- Car BIK: £35,000 x 29% = £10,150
- Total BIK with medical: £10,150 + £1,500 = £11,650
- Income tax: £11,650 x 40% = £4,660 per year (£388/month)
The electric car saves David £3,640 per year in BIK tax alone.
Company Car BIK Rates: The Key Driver
For most employees, the company car is the largest P11D item. BIK rates are set by CO2 emissions:
| Vehicle Type | CO2 (g/km) | BIK Rate 2025-26 | BIK Rate 2026-27 | BIK Rate 2027-28 |
|---|---|---|---|---|
| Pure electric | 0 | 3% | 4% | 5% |
| Plug-in hybrid (electric range 70+ miles) | 1-50 | 3% | 4% | 5% |
| Plug-in hybrid (electric range 30-39 miles) | 1-50 | 8% | 9% | 10% |
| Mild hybrid / petrol | 100-104 | 24% | 25% | 26% |
| Diesel (not RDE2 compliant) | 130-134 | 33% | 34% | 35% |
| High emissions | 170+ | 37% | 37% | 37% |
EV BIK rates are increasing by 1 percentage point per year, but remain dramatically lower than combustion vehicles for the foreseeable future.
Payrolling of Benefits: Mandatory from April 2026
Currently, employers can choose to either report benefits on the P11D or payroll them — meaning the tax is deducted from your monthly pay through PAYE, just like your salary. From April 2026, payrolling of most benefits becomes mandatory. This means:
- You will see the BIK tax deducted from your payslip each month rather than via a tax code adjustment.
- Employers will no longer need to submit P11D forms for payrolled benefits.
- The total tax you pay remains the same — only the collection method changes.
- It should reduce the number of incorrect tax codes and unexpected tax bills.
Salary Sacrifice vs Benefits in Kind
Salary sacrifice is an alternative arrangement where you give up part of your gross salary in exchange for a benefit. The key tax advantages are:
- You save income tax on the sacrificed salary.
- You save employee NI (8% or 2%) on the sacrificed salary.
- Your employer saves employer NI (15%) on the sacrificed salary.
However, the sacrificed amount is then treated as a BIK, so you pay tax on the benefit value. For benefits where the BIK value is lower than the salary given up — notably electric cars, pension contributions, and the cycle to work scheme — salary sacrifice is significantly more tax-efficient than taking the benefit on top of your salary.
Example: A £35,000 electric car via salary sacrifice might cost you £400/month in gross salary. The BIK tax at 3% for a higher-rate taxpayer is just £35/month. Without salary sacrifice, you would pay for the car from net pay — costing over £600/month after tax and NI. The saving is substantial.
Exempt Benefits (No P11D Reporting Needed)
Not all employer-provided benefits are taxable. The following are exempt:
- Employer pension contributions (within Annual Allowance)
- Workplace parking
- One mobile phone (provided by employer)
- Workplace canteen available to all staff
- Eye tests and corrective glasses for VDU users
- Workplace nursery provision (not vouchers)
- Long service awards (under £50 per year of service, after 20 years)
- Trivial benefits under £50 per occasion (capped at £300/year for directors)
Key Takeaways
- Benefits in kind are taxed based on their cash equivalent value multiplied by your marginal tax rate.
- A company car is typically the largest BIK — electric vehicles attract dramatically lower rates (3% in 2025-26 vs up to 37% for high-emission cars).
- Payrolling of benefits becomes mandatory from April 2026, changing how you see BIK tax collected but not the amount.
- Salary sacrifice can be more tax-efficient than a traditional BIK for electric cars, pensions, and cycle-to-work schemes.
- Check your P11D each year and verify the values — errors are common, especially on car list prices.
Use our income tax calculator to see how benefits in kind affect your overall tax position, or try the take-home pay calculator to model salary sacrifice scenarios.