Benefits in kind — non-cash perks that an employer provides to employees or directors — are one of those areas where the compliance rules feel disproportionately complicated relative to the actual value involved. A company car, a private medical policy, a gym membership: all taxable, all reported differently, and all subject to rules that have been patched and updated over decades.

We work with a lot of owner-managed businesses where the director is both employer and employee, which makes benefits in kind especially relevant. Get it wrong and you face HMRC penalties and unexpected National Insurance bills. Get it right and you can use benefits as part of a tax-efficient remuneration strategy.

There is also a significant change on the horizon. From April 2027, reporting benefits through the payroll becomes mandatory rather than optional. That is a meaningful shift in how this all works, and employers who are not prepared will find themselves scrambling. Here is how we think about benefits in kind — what matters, what is changing, and what you should be doing now.

A benefit in kind is anything of value that an employer provides to an employee — or a director — that is not included in their cash salary. The list is longer than most people expect.

• Company cars and vans, including fuel provided for private use
• Private medical or dental insurance
• Living accommodation provided by the employer
• Interest-free or low-interest employer loans
• Gym memberships and other lifestyle benefits
• Non-trivial gifts and entertainment
• Assets made available to employees for personal use

Not everything an employer provides to an employee is taxable, however. There are statutory exemptions and trivial benefit rules that take certain low-value items out of the picture entirely — provided the conditions are met. A box of chocolates at Christmas is not a benefit in kind. A £250 cash bonus dressed up as a gift almost certainly is.

The principle that runs through all of it is straightforward: if an employee receives something of economic value as a result of their employment, and it is not covered by an exemption, it is taxable. The employer pays Class 1A National Insurance on the value, and the employee pays income tax. The mechanics of how that happens are where it gets complicated.

The taxable value of a benefit in kind is generally the cash equivalent — what it actually cost the employer, minus anything the employee has paid back. If a benefit is shared between employees, the value is apportioned accordingly.

Assets made available for an employee’s use (rather than transferred outright) are valued at 20% of the market value at the point the asset was first provided, plus any ongoing running costs the employer picks up. So a piece of equipment worth £10,000 when first provided would give rise to an annual benefit value of £2,000 — regardless of what it is worth today.

Where an asset is transferred to an employee, the value is the higher of its current market value or what the employer originally paid — a rule designed to prevent employers from deflating the taxable amount by running assets into the ground before handing them over.

The employer’s liability is Class 1A National Insurance, charged at the prevailing rate on the total taxable value of all benefits provided. The employee’s liability is income tax at their marginal rate, collected historically through a P11D return and a corresponding adjustment to their tax code. That last part is about to change — which is where the April 2027 reforms become important.

Not all employer-provided perks generate a tax bill, and it is worth being clear on where the exemptions apply — particularly for owner-managed businesses where directors are closely scrutinising their remuneration structure.

Mobile phones

A mobile phone provided by the employer to an employee is exempt from reporting where it is provided primarily for business use and any private use is incidental. This applies to directors as well as employees. If the employer owns the contract and pays the bill, and the phone is genuinely used for business purposes, there is no P11D entry and no benefit-in-kind charge. Where private use is more than incidental, or where the employer simply reimburses a personal phone bill, the position becomes more complicated and HMRC is likely to take a different view.

Trivial benefits

Benefits that cost less than £50, are not cash or a cash voucher, are not provided as a reward for performance or service, and are not provided under a contractual entitlement, can qualify as trivial benefits — exempt from both income tax and National Insurance. For directors of close companies, the annual cap on trivial benefits is £300.

Workplace facilities

Canteen meals available to all employees on the same terms, on-site parking, and employer pension contributions are among the benefits that attract specific exemptions. Each has its own conditions, and assuming something is exempt without checking can be an expensive mistake.

This is the change that every employer — and every payroll provider — needs to be across right now.

Currently, most benefits in kind are reported annually via a P11D return submitted after the end of the tax year. HMRC then adjusts the employee’s tax code for the following year to collect the income tax owed. It is a clunky system that results in tax being collected a year late, employees having unclear tax codes, and employers facing an annual compliance deadline that too often gets left to the last minute.

From April 2027, this changes. Reporting of benefits in kind and taxable employment expenses will become mandatory through the Full Payment Submission (FPS) — the same real-time submission employers already make every time payroll is run. Employers will report benefits alongside wages, and the tax will be collected through payroll in the same way as salary. To prepare, HMRC will automatically remove benefits from employees’ tax codes ahead of the April 2027 implementation.

Employment-related loans and employer-provided accommodation are being handled slightly differently — employers will be able to payroll those voluntarily from April 2027, with mandatory requirements following later.

If you want to get ahead of this, voluntary payrolling is available now. For the 2026 to 2027 tax year, the registration deadline was 5 April 2026 — so if you missed it, the next opportunity is to register ahead of the 2027 to 2028 year, when the change becomes mandatory regardless. Either way, this is not something to ignore until the last minute.

If you run a limited company and pay yourself through a combination of salary and benefits — whether that is a company car, private health cover, or other perks — the April 2027 changes directly affect your payroll process. In our experience, a lot of owner-managed businesses are on top of the compliance side but have not thought through the practical implications of switching from P11D reporting to real-time payrolling of benefits.

There are a few things worth doing now:

• Review what benefits you currently provide. A lot of clients discover, when they actually sit down and go through it, that they have been providing benefits informally without properly accounting for them. Better to find that yourself than have HMRC find it for you.
• Talk to your payroll provider. The mandatory payrolling change will require your payroll software to handle benefit values in the FPS. Not all providers are equally prepared. Ask the question.
• Consider whether voluntary early adoption makes sense. If your payroll is already straightforward and your benefits are clearly defined, moving to payrolling benefits early can simplify the annual process and remove the P11D deadline from your calendar.
• Check your exemptions are genuinely applying. Particularly around mobile phones and trivial benefits — the conditions need to be properly met, not just assumed.

None of this is cause for panic. But it is the kind of thing that benefits from a bit of forward planning rather than a rush in March 2027.