Benefits in Kind Explained: What They Are, How They’re Taxed, and What’s Changing in April 2027

If you’re a business owner or director, you’ve probably heard the term Benefits in Kind (BIKs) thrown around—often alongside P11Ds, payroll submissions, and HMRC deadlines. But what exactly are they, how do they affect tax, and what changes are coming in April 2027 that every employer needs to know?

This guide breaks it down simply, so you can stay compliant and avoid unexpected tax bills.

What Are Benefits in Kind?

Benefits in Kind are non‑cash perks that an employer provides to an employee or director. They’re valuable, they’re taxable, and they must be reported to HMRC.

Common examples include:

• Company cars

• Private medical insurance

• Gym memberships

• Interest‑free or low‑interest loans

• Personal use of company assets

• Living accommodation

• Mobile phones (if more than one per employee)

Even though these benefits aren’t paid as salary, HMRC treats them as taxable income because they provide personal value.

How Benefits in Kind Affect Tax

BIKs impact both Income Tax and National Insurance, and the rules differ depending on whether you’re the employer or the employee.

For Employees and Directors

The value of the benefit is added to your taxable income. You’ll pay Income Tax on it at your usual rate—20%, 40%, or 45%.

For Employers

Employers pay Class 1A National Insurance on most Benefits in Kind at 13.8% of the taxable value. This is reported and paid annually.

How HMRC Calculates the Value

HMRC uses specific rules to determine the taxable value of each benefit. For example:

• Company cars are based on list price and CO₂ emissions

• Medical insurance is based on the cost to the employer

• Loans are based on interest saved

This is why accurate reporting is essential—incorrect values can lead to penalties.

The P11D: What It Does Today

Currently, employers report Benefits in Kind using:

• P11D – submitted for each employee/director receiving benefits

• P11D(b) – summarises the total Class 1A NIC due

These forms are submitted after the tax year ends, and Class 1A NIC is paid by 22 July.

Some employers choose to “payroll” benefits instead, meaning the tax is collected through monthly payroll rather than via a P11D. However, this has been optional—until now.

Major Change Coming: P11Ds Are Being Abolished from April 2027

HMRC has confirmed that from April 2027, the P11D and P11D(b) process will be removed entirely.

What’s replacing it?

All Benefits in Kind will need to be reported through payroll, every month, in real time.

This means:

• No more annual P11D submissions

• No more separate Class 1A NIC calculations

• Employers must ensure payroll software can handle BIK reporting

• Tax will be collected as part of the normal PAYE process

  
  

Why the change?

HMRC is aiming for:

• Simpler reporting

• Fewer errors

• More accurate tax collection

• Reduced admin for employers

But for many businesses, this will require a shift in processes and possibly new payroll systems.

What Employers Should Do Now

Although April 2027 feels a long way off, businesses should start preparing early.

1. Review your current Benefits in Kind

Identify what benefits you provide and how they’re currently reported.

2. Check whether your payroll software supports payrolling BIKs

Most modern systems do, but some older or basic packages may not.

3. Consider switching to payrolling early

You can voluntarily payroll benefits now, which can make the transition smoother.

4. Seek professional advice

An accountant can help you:

• Assess the tax impact

• Set up compliant payroll processes

• Avoid penalties

• Plan tax‑efficient benefit packages

How This Helps You as a Business Owner

Understanding Benefits in Kind—and the upcoming changes—helps you:

• Stay compliant

• Avoid unexpected tax bills

• Offer attractive perks to employees

• Make informed decisions about company cars, medical insurance, and other benefits

• Reduce admin and streamline payroll processes

With the P11D system ending, now is the perfect time to review your benefits strategy and ensure your business is ready.

Need Help Navigating Benefits in Kind or Preparing for the 2027 Changes?

If you’re unsure how these rules apply to your business, or you want support setting up payrolling for benefits, I can help. Whether you’re a sole director or running a growing team, getting this right protects your business and keeps your tax position efficient.