Employment benefits

Today the remuneration of many directors and employees comprises a package of salary and benefits.

Essentially two tests must be applied in determining the tax implications of any benefit.

• Is the benefit taxable?
• If the benefit is taxable, what is its taxable value?

In this factsheet, we give guidance on some of the main benefit in kind rules and outline some common types of benefits.

It is not intended to be an exhaustive guide and any decisions should be supported by professional advice appropriate to your personal circumstances.

Setting the scene

All earnings of an office or employment are taxable. When they are not in cash it becomes necessary to put a value on them.

Where the benefit is convertible into cash the taxable amount is the resale value.

To prevent avoidance, additional legislation charges certain other benefits to tax. The detailed rules are complex. We can advise on structuring remuneration packages, including benefits, in a tax efficient way.

Reporting

Employers are required to notify HMRC of benefits provided to directors and most employees by completing forms P11D annually.

Penalties can apply where the forms are submitted late or are incorrect.

The full amount of any benefit must be reported on this form.

From April 2027, HMRC is mandating the reporting of benefits through the payroll system.

National Insurance

In general, employees' national insurance (NI) is not due on benefits except vouchers, stocks and shares, the discharge of an employee's personal liability and benefits provided by way of 'readily convertible' assets.

Most benefits are subject to Class 1A NICs payable by the employer. As this amounts to 15% from April 2025 of the taxable value of the benefit, you always need to consider the tax efficiency of providing benefits.

Please consult us for advice.

Non-taxable benefits

Trivial benefits

A statutory exemption applies for trivial benefits in kind. The exemption sets out a number of conditions that must be met for a benefit to be exempt which are that the:

• cost of providing the benefit does not exceed £50
• benefit is not cash or a cash voucher
• benefit is not provided under salary sacrifice arrangements or any other contractual obligation
• benefit is not provided in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services.

In addition, where qualifying trivial benefits are provided to directors and other office holders of close companies they will be subject to an annual cap of £300. In a case where the benefit is provided to a member of the employee’s family or household who is not an employee of the employer, this benefit will count towards the £300 exempt amount. Where the director's or other office holder's family or household member is also an employee of the company, they will be subject to a £300 cap in their own right.

Please contact us for advice on how the exemption operates.

Taxable benefits

In addition, special rules apply to tax other benefits received by directors and all but the lowest paid employees. Common types of benefits provided are detailed below.

Employer provided cars

This is probably the most common benefit and the taxable amount will generally be based on a range of up to 37% of the manufacturer’s list price (including accessories) of the car. The taxable benefit depends upon the carbon dioxide emissions of the car.

There are reductions for unavailability of the car and where the employee makes a contribution towards the cost of the car.

Please talk to us for further details on the application of the rules.

Private fuel

a separate charge applies where private fuel is provided for an employer-provided car, unless the employee reimburses the employer for all private mileage (including travel between home and work). The charges are determined by reference to the percentage applying to the company car. A set figure of £29,200 for 2026/27 (£28,200 for 2025/26) is multiplied by this percentage to determine the taxable benefit.

Van

the scale benefit charge for the unrestricted use of an employer provided van is £4,170 for 2026/27 (£4,020 for 2025/26). Where the restricted private use condition is met no benefit arises. Where an employer also provides fuel for unrestricted private use an additional fuel charge of £798 applies (£769 for 2025/26). Please do get in touch if you would like to ensure that employee van use meets the restricted private use condition.

Cheap or interest free loans

No benefit will be taxed where the loan does not exceed £10,000.

Medical insurance

The cost of providing medical insurance is a taxable benefit.

Use of company assets

An annual benefit is taxed where employees have the private use of company assets. The annual benefit amounts to 20% of the asset's market value when first made available to any employee. Insignificant private use of certain assets is not taxable.

Phones

Private home phone bills, including rental charges, which are paid for by the employer will be taxed as a benefit.

Salary sacrifice

The government has introduced rules which limit the income tax and employer NICs advantages where:

• benefits in kind are offered through salary sacrifice; or
• where the employee can choose between cash allowances and benefits in kind.

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher of the taxable value or the value of the cash forgone.

These rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, Cycle to Work schemes or Ultra-Low Emission Vehicles.

Note from April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions. We can help you plan for this change.