Benefit in kind

By:

Arti

Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.

Reviewed by:

James Knight

James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.

Updated:  May 31, 2024

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3 min read

3 key takeaway

• Benefits in kind are non-cash perks given to employees, such as company cars, health insurance, or housing.
• These benefits are taxable and must be reported to tax authorities.
• They can enhance employee compensation packages and improve job satisfaction.

What is a benefit in kind?

A benefit in kind (BIK) is any non-cash benefit provided to employees by their employer. These benefits are a part of the total compensation package and can include items such as company cars, private health insurance, accommodation, or gym memberships. While these perks are valuable to employees, they are also considered taxable income by most tax authorities and must be reported accordingly.

Employers provide benefits in kind to attract and retain employees, offering additional value beyond regular salaries. These benefits can improve job satisfaction and loyalty by enhancing the overall compensation package.

Common types of benefits in kind

• Company Cars: Employers may provide company cars for business and personal use. The value of this benefit is assessed based on factors such as the car’s market value, CO2 emissions, and usage.
• Health Insurance: Private health insurance provided by employers is a popular benefit. The cost of the premium paid by the employer is considered a taxable benefit for the employee.
• Housing: Accommodation provided by the employer, either rent-free or at a reduced cost, is considered a benefit in kind and is taxable.
• Meal Allowances: Free or subsidized meals at work or meal vouchers are also considered benefits in kind and are subject to tax.

Tax implications of benefits in kind

Benefits in kind are generally subject to income tax and, in some cases, national insurance contributions or other local taxes. Employers must report these benefits to the tax authorities and may need to calculate the cash equivalent value of the benefits provided. Employees are then taxed on this value as if it were additional salary.

For example, if an employee is given a company car, the taxable value of this benefit is calculated based on the car’s list price, its CO2 emissions, and how much it is used for personal travel. This value is added to the employee’s taxable income, and the appropriate taxes are applied.

Real world application

Employers use benefits in kind to create attractive compensation packages that can differentiate them in a competitive job market. For example, a tech company might offer free meals, gym memberships, and flexible working arrangements as part of its benefits package to attract top talent.

Employees need to understand the tax implications of these benefits to avoid unexpected tax liabilities. For instance, while receiving a company car might seem like a great perk, the employee must be aware that it will increase their taxable income and potentially their tax bill.