A benefit in kind (BIK) is a non-cash perk from your employer that HMRC treats as taxable income. Common examples: company car, private medical insurance, interest-free loans above £10,000, gym membership, accommodation. The taxable value is added to your salary for income tax + NI purposes, usually collected through your tax code.
How BIK tax actually works
The basic mechanic: HMRC calculates a "cash equivalent" for each benefit, adds it to your taxable income, and adjusts your tax code to collect the tax monthly. Your salary on the payslip stays the same, but more tax comes off.
- The cash equivalent is the BIK value: HMRC's calculated cost of the perk to you, not always its market price.
- Income tax is charged at your marginal rate (20%, 40% or 45%) on the cash equivalent.
- Class 1A NI is paid by the employer at 15% (2026/27) on the cash equivalent. You don't pay employee NI on BIKs unless they're cash vouchers.
- Reporting goes via the P11D form each July, or "payrolled" each pay period if your employer has opted in.
So a £1,000 BIK costs you £200/£400/£450 in income tax (basic/higher/additional). Your employer pays £150 of NI on top. Total cost of the benefit to your household: 20-45% of its cash-equivalent value.
Common BIKs and how they're valued
| Benefit | How BIK value is calculated |
|---|---|
| Company car (petrol/diesel) | List price × CO₂ band % (up to 37%) |
| Company car (electric) | List price × 3% (2026/27, rising to 4% in 2027/28) |
| Private medical insurance | Premium paid by employer |
| Interest-free loan >£10,000 | Notional 3.0% interest (HMRC official rate) |
| Gym membership / dental cover | Premium / cost paid by employer |
| Living accommodation | Rateable value + cost-rent adjustment |
| Mobile phone (one, business + personal) | Exempt from BIK |
| Cycle to Work scheme | Exempt |
| Workplace nursery | Exempt |
Some perks look like BIKs but are explicitly exempt — bicycles under Cycle to Work, workplace nurseries, employer pension contributions, and one mobile phone per employee.
Worked example: BIK on a Tesla Model 3
Tesla Model 3 list price £42,000. Pure electric, so the BIK rate is 3% in 2026/27.
- BIK cash equivalent = £42,000 × 3% = £1,260 a year
- Income tax (40% bracket) = £504
- Employer Class 1A NI = £189 (paid by employer, not you)
- Net cost to you of running a £42,000 car: £504 a year of tax
That's why electric company cars are extraordinarily tax-efficient — the BIK rate is artificially low to incentivise EV uptake. By contrast, the same list-price petrol car with high CO₂ might attract a 30% BIK rate, costing the same person £5,040 a year of tax.
Common BIK mistakes
Calculate company car BIK exactly
The company car BIK calculator handles list price, CO₂ band, electric range, fuel benefit and the tax-year transition rates.
Open the company car BIK calculator →Sources and methodology
BIK rates and rules from gov.uk/expenses-and-benefits-a-to-z and HMRC's Employment Income Manual. Company car CO₂ tables from gov.uk/government/publications/rates-and-allowances-tax-and-tax-credits. Class 1A employer NI rate from gov.uk/national-insurance-rates-letters.
UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial advice — see the content disclaimer for the full position. The methodology page documents how every calculator is built and reviewed.
Related
- Company car BIK calculator — precise tax on company car for petrol, diesel, hybrid or electric
- How company car tax rates work — the 3% to 37% scale, fuel benefit, and tax-year changes
- P60 vs P45 vs P11D — where BIK appears on your payroll paperwork
- What is a UK tax code? — how BIK shifts your tax code
- Full UK money glossary
- FAQ library
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