A benefit in kind is something of value your company gives you that is not cash pay: a company car, private medical cover, a cheap loan, fuel for personal journeys. Most are taxable. You pay income tax on the value, and your company pays Class 1A National Insurance at 15% on top. Some benefits are exempt, and a handful of small perks are deliberately tax free. Knowing which is which keeps your P11D right and avoids a surprise from HMRC.
This guide covers what counts as a benefit in kind, how the taxable value is worked out, the big ones directors actually use, the exemptions worth knowing, and the reporting deadlines. The figures are for the 2026/27 tax year.
Key takeaways
- Most non-cash perks are taxable. You pay income tax on the value, the company pays Class 1A NI at 15%.
- Electric company cars are cheap. The taxable rate on an EV is just 4% of list price in 2026/27, against up to 37% for petrol or diesel.
- Trivial benefits are free. Small perks up to £50 are tax free, capped at £300 a year for directors of close companies.
- Cheap loans can be caught. A loan over £10,000 is a benefit unless you pay interest at HMRC's 3.75% official rate.
- Payrolling becomes mandatory. Most benefits must be reported through payroll from 6 April 2027, so the P11D is on its way out.
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The taxable rate on an electric company car in 2026/27, against up to 37% on petrol or diesel.
What counts as a benefit in kind
A benefit in kind is a non-cash benefit you get because of your employment or directorship. Common ones include a company car, fuel for private use, private medical insurance, gym membership, living accommodation and an interest-free or low-interest loan. The taxable amount is the cash equivalent, broadly the cost to the company of providing it, or a set value fixed by HMRC for certain benefits like cars.
You pay income tax on that value at your marginal rate. Separately, the company pays Class 1A National Insurance on it at 15% for 2026/27. So a benefit is rarely free for either side, which is why it is worth knowing the exemptions before you put a perk through the company, and why benefits belong in the same conversation as your salary and dividend split rather than being decided separately.
Company cars and the electric advantage
The company car benefit is a percentage of the car's list price, set by its CO2 emissions. Fully electric cars are taxed at 4% of list price in 2026/27, up from 3% the year before, and the rate climbs by about one percentage point a year, reaching roughly 9% by the end of the decade. Petrol and diesel cars are taxed at up to 37%, with a 4% surcharge on most diesels.
The gap is large. An electric car with a £40,000 list price gives a taxable benefit of £1,600, costing a higher-rate director £640 in tax and the company £240 in Class 1A NI. A petrol car at the same price and a 37% rate gives a £14,800 benefit, costing the director £5,920 and the company £2,220. That is why an electric company car still stacks up for many directors, even with the rate creeping up.
Illustrative for a UK company car on the 2026/27 rates. Enter the P11D list price and the benefit percentage for the car's CO2 band, then pick your marginal rate. Company Class 1A NI is 15%. Not a substitute for advice.
There is a separate charge if the company also pays for private fuel in a petrol or diesel car. It is worked out by applying the same emissions percentage to a fixed figure, £29,200 for 2026/27, up from £28,200. For most directors it is poor value. Reimbursing the company for your private mileage removes it altogether.
Trivial benefits: small perks that are tax free
Not every perk is taxable. A trivial benefit is exempt if it costs £50 or less, is not cash or a cash voucher, is not a reward for work or performance, and is not in the terms of your contract. A birthday gift, a meal out for no particular reason, or a store voucher under £50 can all qualify.
Directors of close companies, which most owner-managed companies are, have an annual cap of £300 across all their trivial benefits, so up to six £50 items in a year. Used properly, this is a genuine way to take a little value out of the company tax free, with no income tax and no Class 1A NI.
Cheap or interest-free loans
If your company lends you money on favourable terms, the cheap interest is a benefit in kind once the loan goes over £10,000 at any point in the year. The taxable benefit is the difference between HMRC's official rate of interest, 3.75% for 2026/27, and what you actually pay. This overlaps with the director's loan account rules, where a separate corporation tax charge of 35.75% can also apply if the balance is still outstanding nine months and one day after the year end. We cover that in full in our guide to the director's loan account and s455.
Benefits that are exempt or tax free
Several things a company pays for are specifically exempt, so they never reach a P11D:
From 6 April 2026 the list grew. Employers can now reimburse the cost of eye tests, flu vaccinations and home-working equipment without it becoming a taxable benefit, which is useful for directors who work from home. Mileage in your own car is also covered: you can claim up to 45p a mile for the first 10,000 business miles and 25p after that, tax free, under the approved mileage allowance payment rates.
Reporting: the P11D and the 2027 change
For 2025/26 and 2026/27 benefits are reported on a form P11D after the tax year ends, unless you already payroll them. The P11D and the employer's P11D(b) are due by 6 July following the end of the tax year, and the Class 1A National Insurance is payable by 19 July, or 22 July if you pay electronically. Miss the deadline and penalties build up, so the dates are worth diarising.
A bigger change is coming. From 6 April 2027 most benefits in kind must be reported in real time through payroll, rather than on a P11D after the year. Employer-provided loans and living accommodation can stay on the P11D for now, but everything else moves to payroll. It is a payroll change worth preparing for early, and we handle it as part of our payroll service.
"Good service, they responded promptly through WhatsApp whenever I had a problem. They sent me clear videos of my accounts and what I must do."
Zion D., sports physiotherapy company, October 2023Benefits are one piece of it. See how we plan the books, the reporting and the tax for directors across the whole year.
Are your benefits set up the tax-efficient way?
Five short questions on the perks running through your company. At the end you will get an honest read on whether your benefits and P11D are in good shape or worth a look. Either way, the next step is a free 15-minute call.
Getting it right as a director
The P11D rewards tidy records: a log of what the company paid for during the year, the loan account reviewed before the year end rather than after, and a check of each item against the exemption list. Done that way, the form takes an hour and the numbers agree with your personal tax return without any awkward reconciliation. Done in a rush on deadline day, it is where discrepancies are born.
Related reading for directors
Salary versus dividends for directors
Where benefits fit alongside the salary and dividend split under the 2026/27 rules.
Read the article → ComplianceDirector's loan accounts and s455
How a cheap loan becomes a benefit, and the separate 35.75% corporation tax charge.
Read the article → Tax planningUsing pensions in a business tax plan
Employer pension contributions are an exempt benefit and a tax-efficient extraction route.
Read the article →Frequently asked questions
How is benefit in kind tax calculated?
You pay income tax at your marginal rate on the cash equivalent of the benefit, which is broadly its value to you. The company separately pays Class 1A National Insurance on the same value at 15% for 2026/27. Company cars use a fixed percentage of list price instead of actual cost.
What is the benefit in kind on an electric car?
For 2026/27 an electric company car is taxed at 4% of its list price. On a £40,000 car that is a £1,600 benefit, far below the up-to-37% rate on petrol and diesel cars. The rate rises by roughly one percentage point a year.
Are trivial benefits really tax free?
Yes, if each one costs £50 or less, is not cash, is not a reward for work and is not contractual. Directors of close companies have a £300 annual cap on trivial benefits, so up to six £50 items across the year.
When do I have to file a P11D?
By 6 July following the end of the tax year, together with the P11D(b). The Class 1A National Insurance is due by 19 July, or 22 July if paid electronically. From 6 April 2027 most benefits move to real-time payroll reporting instead.
Does private medical insurance count as a benefit in kind?
Yes. Private medical cover paid by the company is a taxable benefit. You pay income tax on the premium value and the company pays Class 1A National Insurance on it, and it is reported on the P11D until payrolling becomes mandatory.
Get your benefits structured properly
Total Books Accountants Ltd is a regulated, founder-led practice of limited company accountants, led by Buhir Rafiq with more than 30 years in accounting and finance. We are AAT licensed, an HMRC registered tax agent, a Companies House authorised agent and a Xero Certified Advisor, working from offices in Cardiff, Newport and Bristol and UK-wide through our Virtual Finance Office with secure digital onboarding.
Book a free 15-minute business call and we will set your benefits up the right way, and get you ready for payrolling in 2027.
This guide is general information, not advice for your specific situation. Tax rules, rates and reporting requirements change, and the treatment of a benefit depends on the facts. Completing your returns remains the responsibility of the taxpayer; please take professional advice before acting.
