Key facts
- Benefits in kind (BIK) are reported to HMRC on form P11D after each tax year.
- The employer pays Class 1A NIC at 15% on the taxable value of benefits.
- Company car BIK is based on the car’s list price and CO2 emissions (3% for pure electric in 2025/26).
- Benefits can be payrolled instead of using P11D — tax is collected in real time.
- Some benefits are exempt — e.g. employer pension contributions, cycle-to-work schemes, and trivial benefits under £50.
How Benefits in Kind Are Taxed for Directors
A benefit in kind (BIK) is any non-cash perk or benefit provided to an employee or director by reason of their employment. If the company provides something of value — other than salary — it is generally a BIK and must be reported to HMRC.[1]
Common benefits include:
- Company cars and fuel
- Private medical and dental insurance
- Living accommodation provided by the company
- Interest-free or low-interest loans (over £10,000)
- Gym memberships and subscriptions paid by the company
Company Cars
The company car is one of the most significant BIK charges. The taxable value is calculated as:[3]
BIK value = Car’s list price (P11D value) × Appropriate percentage (based on CO2 emissions)
The appropriate percentage for 2025/26 is:
| CO2 Emissions (g/km) | Electric Range (miles) | BIK % |
|---|---|---|
| 0 | n/a (pure electric) | 3% |
| 1–50 | 130+ | 3% |
| 1–50 | 70–129 | 6% |
| 1–50 | 40–69 | 9% |
| 1–50 | 30–39 | 13% |
| 1–50 | <30 | 15% |
| 51–54 | — | 16% |
| 55–59 | — | 17% |
| 100–104 | — | 26% |
| 160+ | — | 37% (maximum) |
Example: A company provides a car with a list price of £35,000 and CO2 emissions of 120 g/km (BIK rate: 30%). The taxable benefit is £35,000 × 30% = £10,500. A higher-rate taxpayer pays £10,500 × 40% = £4,200 in tax. The company pays Class 1A NIC of £10,500 × 15% = £1,575.
Fuel Benefit
If the company also pays for private fuel (not just business mileage), a separate fuel benefit charge applies. This is calculated using a fixed multiplier:[3]
Fuel BIK = £28,200 (2025/26 multiplier) × Appropriate percentage (same CO2-based % as the car)
The fuel benefit charge cannot be reduced by partial contributions — the director must either reimburse all private fuel costs or bear the full charge. For high-emission vehicles, this can be a substantial additional tax cost.
Other Common Benefits
| Benefit | Taxable Value | Notes |
|---|---|---|
| Private medical insurance | Cost to the employer (premium paid) | One of the most common BIK for directors |
| Living accommodation | Annual value (or rent paid by company, if higher) + additional charge if property cost exceeds £75,000 | Rare exemptions for certain roles |
| Interest-free loans | Official rate of interest (2.25%) on the outstanding balance, less any interest actually paid | Only taxable if loan exceeds £10,000 at any point in the year |
| Vans | £3,960 (2025/26) for private use; £0 for zero-emission vans | Flat rate, not based on value |
P11D Reporting & Payrolling
Employers must report benefits on form P11D, submitted to HMRC by 6 July following the end of the tax year. Class 1A NIC is due by 22 July (19 July for cheque payments).[1]
Alternatively, employers can payroll benefits, which means the taxable value is added to the director’s pay each month and tax is collected through PAYE in real time. Payrolling must be registered with HMRC before the start of the tax year.[1]
- Payrolling removes the need to file individual P11D forms for payrolled benefits
- The employer must still submit a P11D(b) to declare Class 1A NIC
- Not all benefits can be payrolled — interest-free loans and living accommodation are excluded
Exempt benefits: Some benefits are fully exempt from tax and NIC and do not need reporting. These include employer pension contributions, the first £6 of daily workplace meals, cycle-to-work scheme bikes, trivial benefits of £50 or less per occasion (up to £300 per year for directors), and eye tests for VDU users.[4]
Corporation Tax Deduction
The cost of providing benefits to directors is generally an allowable deduction for Corporation Tax purposes, provided the expense is incurred wholly and exclusively for the purposes of the trade. This includes:[2]
- The cost of providing the benefit (car lease payments, insurance premiums, etc.)
- The Class 1A NIC the employer pays on the benefit
The CT deduction for the employer can partially offset the overall tax cost of providing benefits to directors. These costs are deducted as normal expenses in the company’s CT600 computation.
Frequently Asked Questions
How is company car tax calculated for directors?
The taxable benefit is calculated as the car’s list price (P11D value) multiplied by the appropriate percentage based on CO2 emissions. Pure electric cars have a BIK rate of just 3% in 2025/26.
What is the employer’s NIC on benefits in kind?
The employer pays Class 1A National Insurance at 15% on the taxable value of benefits in kind. This is in addition to the Income Tax the director pays on the benefit.
When must benefits in kind be reported to HMRC?
Benefits are reported on form P11D, which must be submitted to HMRC by 6 July following the end of the tax year. Alternatively, employers can payroll benefits so tax is collected through PAYE in real time.
Are there any benefits in kind that are tax-free?
Yes. Exempt benefits include employer pension contributions, cycle-to-work scheme bikes, trivial benefits under £50 per occasion (up to £300 per year for directors), workplace meals under £6 per day, and eye tests for VDU users.
Can the company deduct the cost of benefits from Corporation Tax?
Yes. The cost of providing benefits to directors is generally an allowable deduction for Corporation Tax, provided the expense is wholly and exclusively for the purposes of the trade. This includes the Class 1A NIC paid.
Further Reading
- Salary vs Dividends — optimising total remuneration for director-shareholders
- Directors’ Loan Accounts — BIK on interest-free loans via DLAs
- Section 455 Tax — additional tax on outstanding director loans
- Allowable Business Expenses — what the company can deduct
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Sources
- Reporting expenses and benefits — GOV.UK
- Tax on company benefits — GOV.UK
- Company car tax: rates and thresholds — GOV.UK
- Employment Income Manual: benefits in kind — HMRC