Understanding the Tax and NIC Treatment of Employee Benefits
As of the 6th of July, UK employers must ensure they have submitted their P11D forms to HMRC. These forms are required for reporting benefits-in-kind (BIKs) ,which are non-cash perks provided to employees that are not processed through payroll. Employers are also responsible for paying Class 1A National Insurance contributions (NICs) on most of these benefits by 22 July.
Understanding which benefits are taxable, and how they are treated for Income Tax and National Insurance, is essential for compliance and effective financial management. Here is a clear breakdown of how different types of benefits are taxed for both employers and employees.
What exactly are BIKs?
Benefits-in-kind (BIKs) are non-cash benefits provided to employees or directors that carry a monetary value. Common examples include:
- Company cars
- Private medical insurance
- Employer-provided accommodation
- Interest-free or low-interest loans
- Gym memberships
- Non-cash gifts
Most benefits must be declared on the P11D form, unless they are included in payroll through payrolling benefits, a method that collects tax on benefits via the employee’s monthly salary.
Are employee benefits subject to Income Tax and NICs?
Below is a summary of the typical tax and NIC treatment:
| Type of Benefit | Subject to Income Tax (Employee) | Subject to NICs (Employee) | Subject to Class 1A NICs (Employer) |
| Company car | Yes | No | Yes |
| Private medical insurance | Yes | No | Yes |
| Living accommodation | Yes | No | Yes |
| Interest-free or cheap loans | Yes (if over £10,000) | No | Yes |
| Childcare vouchers (post-2018) | Yes | No | Yes |
| Mobile phone (1 per employee) | No | No | No |
| Work-related training | No | No | No |
| Employer pension contributions | No | No | No |
| Trivial benefits (≤ £50 each) | No | No | No |
Even though most employee benefits are taxable for Income Tax, they usually do not come with National Insurance charges for the employee. Instead, it is the employer who is responsible for covering Class 1A NICs, which is charged at 13.8% on the taxable value of those benefits.
How are benefits reported?
- P11D Forms: Must be completed for each employee or director receiving taxable benefits not processed through payroll.
- P11D(b) Form: Summarises the employer’s Class 1A NIC liability across all employees.
- Payment Deadline: Employers must pay Class 1A NICs by 22 July (electronic payment) or 19 July (postal payment).
Tax-free (exempt) benefits
Several benefits are exempt from both Income Tax and NICs, such as:
- One mobile phone per employee (if provided by the employer)
- Employer contributions to registered pension schemes
- Eye tests and glasses (where required for screen work)
- Trivial benefits (non-cash, under £50, not regular or performance-linked)
- Meals provided in a staff canteen (where available to all employees)
If the relevant exemption conditions are met, these do not need to be reported on the P11D.
What steps should I take to remain compliant?
With the 6 July deadline fast approaching, employers should:
- Review all employee benefits provided during the tax year
- Identify which benefits are taxable
- Submit accurate P11D and P11D(b) forms to HMRC
- Ensure Class 1A NICs are paid by the July deadline
Failure to comply can result in penalties and interest from HMRC. Regular review of your employee benefits and proactive planning with your accountant or payroll adviser can ensure compliance and may help reduce your tax exposure.
If you have any questions, please contact us for a free consultation on 0208 249 6007. We are here to help!