Benefits in Kind: How Perks Are Taxed in 2025/26
Understanding Benefits in Kind for Contractors
For many UK contractors operating limited companies, benefits in kind (BiKs) are an important consideration. These perks—ranging from company cars to health insurance—can provide real value, but they also trigger tax and reporting responsibilities. This guide outlines what counts as a benefit in kind, how they are taxed in the 2025/26 tax year, and key changes on the horizon.
What Are Benefits in Kind?
Benefits in kind are goods or services provided by your company to you (or your employees) that are not part of your salary. Typical examples include:
Private medical insurance
Company cars or fuel
Beneficial loans (such as an overdrawn director’s loan account)
Certain professional subscriptions
The core principle is straightforward: if your company provides a service, good, or perk that has a personal value, HMRC may require you to pay income tax on its cash equivalent. Your company also pays employer National Insurance (Class 1A NIC) on most BiKs.
2025/26 Tax Rates and Employer NIC
For the 2025/26 tax year, employer Class 1A and 1B NIC on most benefits is 15%. This is a cost to the company, not the individual, and is paid in addition to the tax on the benefit itself.
Refer to HMRC’s current rates and thresholds for further details.
Reporting Benefits to HMRC
There are two main ways to report benefits in kind:
1.Traditional P11D and P11D(b) Reporting
Report benefits after the end of the tax year using forms P11D (details per employee) and P11D(b) (Class 1A NIC summary).
Class 1A NIC is paid by 22 July if paying electronically, or 19 July for postal payments.
2.Payrolling Benefits
Tax is collected monthly through payroll by including benefit values in your regular pay calculations.
A P11D(b) return is still required to pay Class 1A NIC.
Not all benefits can be payrolled yet (notably, loans and living accommodation).
For a full explanation, see the official HMRC payrolling guide.
Key Deadlines
6 July: Submit P11D and P11D(b) forms to HMRC and provide employees with their benefit information.
22 July: Pay Class 1A NIC (or 19 July by post).
Filing: All returns must be submitted online.
Major Changes from April 2027
Significant reform is underway. From April 2027:
Most benefits must be payrolled electronically via Real Time Information (RTI).
HMRC will remove benefit adjustments from employees’ tax codes.
Employers will no longer need to register to payroll these benefits.
Employment-related loans and living accommodation are initially excluded but can be payrolled voluntarily. HMRC will announce when payrolling these will become mandatory.
Contractors must prepare their systems and processes for this transition. See the government’s update for more.
Private Medical Insurance: A Common Contractor Benefit
Many contractors ask whether private healthcare is a benefit in kind. The answer is unequivocal: yes.
If your company pays for your policy, you pay income tax on the benefit value.
The company pays Class 1A NIC at 15% for 2025/26.
If salary sacrifice is used, the taxable amount is the higher of cash foregone or the normal benefit value.
Common Mistakes: Avoid These Pitfalls
Even experienced contractors can get caught out. Typical errors include:
Reporting reimbursed business expenses on P11D: Since 2016, if your company reimburses an expense that would be deductible, it is exempt from P11D reporting (provided you keep robust records and have proper checks).
Incorrect company car details: Tax depends on list price, CO2 emissions, and fuel type. Use HMRC’s car benefit calculator and keep vehicle records.
Overlooking beneficial loans: Loans above £10,000 (such as a director’s loan account) may be taxable. Smaller loans are usually exempt.
Mixing up staff and client entertaining: Staff annual events (within limits) may be exempt; client entertaining is not tax deductible and is not a benefit in kind.
Quick Reference: Common Benefits and Their Treatment
| Benefit | Taxable to Employee | Employer NIC (2025/26) | Report or Payroll? |
|---|---|---|---|
| Private medical insurance | Yes | Class 1A at 15% | P11D or payroll, P11D(b) still needed |
| Company car | Yes | Class 1A | P11D or payroll, record CO2 and price evidence |
| Fuel for private use | Yes (if not repaid) | Class 1A | P11D or payroll, can exclude fuel from benefit |
| Mobile phone (one handset) | Usually no | None | Exempt if for business and private use |
| Approved professional subscriptions | No | None | Exempt if on HMRC’s approved list, keep receipts |
| Director’s beneficial loan >£10,000 | Yes | Class 1A | P11D (not mandated for payrolling at first) |
| Living accommodation | Often yes | Class 1A | P11D, special valuation rules |
| Reimbursed business expenses | No | None | Exempt if fully deductible (statutory exemption) |
Essential Actions for Contractors
While accountants will handle much of the compliance, responsibility ultimately lies with the director. Take these steps to ensure compliance and efficiency:
Choose your reporting approach: Stick with P11Ds or register to payroll benefits before the tax year.
Plan for 2027: Prepare systems for mandatory payrolling of most benefits via RTI. Keep abreast of changing requirements for loans and accommodation.
Diary deadlines: Mark 6 July (filing) and 22 July (payment) in your calendar every year.
Tighten record keeping: Maintain evidence for all benefits, apply the reimbursed expenses exemption properly, and reconcile payrolled benefits to the Class 1A NIC figure.
Frequently Asked Questions
Do I still need a P11D if we payroll benefits?
Not for payrolled benefits. You must still submit a P11D(b) to pay Class 1A NIC, and file P11Ds for any benefits not yet eligible for payrolling, such as loans and accommodation.
What are the exact deadlines?
6 July: Submit P11D and P11D(b), provide benefit details to employees.
22 July: Pay Class 1A NIC (19 July if paying by post).
Are reimbursed expenses reportable?
Qualifying reimbursed business expenses are exempt from P11D reporting if you follow HMRC’s statutory exemption rules and keep evidence.
Where can I check special cases?
A Final Word
Benefits in kind remain a powerful tool for rewarding directors and employees, but the compliance burden is growing. Fiscal responsibility demands that contractors understand their obligations, keep robust records, and plan for digital transformation in benefit reporting. Consult your accountant regularly and stay ahead of legislative changes to protect your business and personal finances.
