Benefits in kind explained: how perks are taxed in 2026/27
Updated 12 November 2026 · Tax year 2026/27
Scope: income tax on non-cash benefits from an employer, 2026/27, for employees in England, Wales, Northern Ireland and Scotland. The Take-Home Lab calculator does not include benefits in kind.
A benefit in kind is anything of value your employer gives you that is not paid as salary: a company car, private medical insurance, a van you can take home, a cheap loan, a gym membership. HMRC treats most of these as part of your pay. You do not receive the value as cash, but you pay income tax on it as if you had, and that tax usually comes out of your salary. That is why two people on the same salary can have different take-home pay.
This pillar guide explains how benefits are valued, how the tax is collected, which benefits are tax-free and what common perks cost for the 2026/27 tax year. Every £ example uses the income tax bands in the js/tax.js engine behind the Take-Home Lab calculator. It is general information, not tax advice. The detailed guides in this cluster are:
- Company car tax and benefit in kind: list price, CO2 percentages, the 4% electric rate, diesel supplement and fuel benefit
- Private medical insurance as a benefit in kind: health insurance, dental cover, cash plans and the health exemptions
- Company van benefit: the flat £4,170 van charge, £798 van fuel charge and zero-emission vans
- Beneficial loans: season ticket and other cheap loans, the £10,000 exemption and the 3.75% official rate
- Salary sacrifice for benefits (OpRA): why most perks bought with salary sacrifice are taxed on the salary given up, and the exceptions
How a benefit in kind is taxed
Three steps decide what you pay.
- The benefit is given a cash value (HMRC calls it the cash equivalent). For most benefits this is what it cost your employer. Cars, vans, fuel, loans and accommodation have their own statutory formulas, set out in HMRC's guide 480.
- That value is added to your taxable income. It uses up your personal allowance and tax bands exactly like extra salary.
- You pay income tax on it at your marginal rate: 20% for most basic-rate taxpayers, 40% for higher-rate, or the Scottish rates if you pay Scottish income tax.
Employees do not pay National Insurance on most benefits in kind. Instead your employer pays Class 1A National Insurance at 15% of the value. Benefits are also left out of the earnings your employer uses for student loan deductions through payroll.
The main exception is where your employer pays a bill that is legally yours, or gives you cash or a cash voucher. That counts as ordinary pay, so PAYE tax and Class 1 National Insurance are deducted through payroll as if it were salary.
Worked example: £1,200 of private medical insurance
Assumptions: 2026/27 · standard £12,570 personal allowance · insurance worth £1,200 a year to the employer · no other benefits.
| Salary and region | Marginal rate | Tax a year | Tax a month |
|---|---|---|---|
| £35,000, England, Wales or NI | 20% | £240.00 | £20.00 |
| £60,000, England, Wales or NI | 40% | £480.00 | £40.00 |
| £35,000, Scotland | 21% | £252.00 | £21.00 |
| £60,000, Scotland | 42% | £504.00 | £42.00 |
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Your employer also pays Class 1A National Insurance of 15% × £1,200 = £180.00. If the tax is collected through your tax code, your personal allowance falls by £1,200, so 1257L becomes 1137L.
When a benefit pushes you into a higher band
Because the value is added to your income, a benefit can move part of your income into a higher band even though your salary has not changed.
- £49,000 salary plus a £4,170 van benefit: £1,270 of the benefit is taxed at 20% and the other £2,900 at 40%, so the van costs £1,414.00 a year in tax rather than £834.00.
- £98,000 salary plus a £4,500 car benefit: the first £2,000 is taxed at 40%. The remaining £2,500 is above £100,000, where the personal allowance is withdrawn by £1 for every £2, so it is taxed at an effective 60%. The car costs £2,300.00 in tax. See £100,000 after tax for the taper.
Benefits in kind also count towards adjusted net income for the High Income Child Benefit Charge, which starts at £60,000, and for the £100,000 limit for tax-free childcare. Check both if a new benefit takes you near those levels.
How the tax is collected
There are two routes, and the total tax for the year should be the same either way.
- Tax code adjustment. Your employer reports the benefit to HMRC on a form P11D after the tax year ends. HMRC estimates the benefit for the following year and reduces your personal allowance in your tax code, so the extra tax is taken a little at a time each payday. If the estimate is out of date, for example because you started a benefit part way through the year, you may have tax to pay or a refund due later.
- Payrolling. Your employer adds the value of the benefit to your taxable pay each pay period and deducts the tax through PAYE as it goes, with no change to your tax code. Payrolling is voluntary for 2026/27. HMRC plans to make it mandatory from 6 April 2027 for company cars, car fuel, vans, van fuel and employer-provided medical benefits, and from April 2028 for most other benefits except employer loans and living accommodation.
For benefits that are not payrolled, the employer deadlines after the end of the tax year are: P11D forms to HMRC and a copy to each employee by 6 July; the P11D(b) return of Class 1A National Insurance by 6 July; and payment of Class 1A by 22 July (19 July by cheque). Small or irregular benefits can instead be covered by a PAYE Settlement Agreement, where the employer pays the tax for you.
How common benefits are valued
| Benefit | Taxable value for 2026/27 | Example tax at 20% / 40% |
|---|---|---|
| Company car | List price × appropriate percentage (4% for electric, up to 37%) | £40,000 electric car, £1,600 value: £320 / £640 |
| Car fuel for private use | Car's appropriate percentage × £29,200 | 30% car, £8,760 value: £1,752 / £3,504 |
| Company van | Flat £4,170 (£0 for a zero-emission van) | £834 / £1,668 |
| Van fuel for private use | Flat £798 | £159.60 / £319.20 |
| Private medical or dental insurance | Cost to the employer | £1,200 policy: £240 / £480 |
| Cheap or interest-free loan over £10,000 | Interest at the official rate (3.75%) minus interest you pay | £15,000 interest-free all year, £562.50 value: £112.50 / £225 |
| Living accommodation | Annual value less rent you pay, plus an extra charge if it cost over £75,000 | £6,000 annual value: £1,200 / £2,400 |
| Gym or club membership paid by the employer | Cost to the employer | £600 a year: £120 / £240 |
| Employer asset lent for private use | 20% a year of its market value when first provided | £1,500 item, £300 value: £60 / £120 |
| Benefit bought by salary sacrifice | Higher of the salary given up and the normal value | See the OpRA guide |
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The value is reduced if a benefit is only available for part of the year, and for most benefits it is reduced by anything you pay your employer for it ("making good"), usually by 6 July after the tax year ends.
Tax-free benefits
Many workplace perks are exempt, so there is nothing to report and no tax or National Insurance to pay, provided the conditions are met. The main exemptions in HMRC's guide 480 are:
- Trivial benefits costing £50 or less, such as a birthday gift or a team lunch, if they are not cash or a cash voucher, not a reward for work and not part of your contract. Directors of close companies are capped at £300 a year.
- One mobile phone per employee, including line rental and calls the employer pays directly.
- Workplace parking for a car, motorcycle or bicycle at or near your place of work.
- Cycle to work: bicycles and cycling safety equipment lent to employees mainly for commuting.
- Pensions advice up to £500 a year, and employer contributions to a registered pension scheme.
- Eye tests and glasses needed for screen work, and flu vaccinations.
- One health screening and one medical check-up a year.
- Medical treatment to help you return to work, up to £500, after 28 consecutive days of ill health or absence.
- An annual party or similar event open to staff generally, costing no more than £150 a head in total.
- Long service awards after at least 20 years, worth up to £50 for each year of service.
- Homeworking costs of up to £6 a week (£26 a month) if you regularly work at home under an agreement with your employer.
- Workplace charging of electric and plug-in hybrid vehicles, if it is available to staff generally.
- Relocation expenses up to £8,000 when you move home for a new job or a transfer.
- Free or subsidised meals in a staff canteen available to staff generally, in-house sports facilities, welfare counselling, work-related training and a works bus.
Most of these exemptions stop applying if the perk is provided through salary sacrifice. The benefit is then taxed on the salary you gave up. Pensions, pensions advice, cycle to work, some childcare and cars with CO2 emissions of 75 g/km or less keep their special treatment. See the salary sacrifice benefits guide.
Less common benefits
Living accommodation
A house or flat provided by your employer is taxed on its annual value (broadly the rent it would fetch), or the rent your employer pays if that is higher, less any rent you pay. If it cost more than £75,000, an extra charge based on the cost above £75,000 and the official interest rate is added. Accommodation is exempt if it is "job-related", for example where you must live on site to do the job properly.
Gym and club membership
If your employer pays your membership to a gym or club open to the public, the cost to your employer is a taxable benefit. Sports facilities run by your employer for staff and their families are exempt.
Life assurance and death-in-service cover
What your employer spends on providing a pension, lump sum or similar benefit payable on your retirement or death, such as group death-in-service cover, is generally not a taxable benefit. If your employer instead pays the premiums on a life policy you own, that is normally treated as pay.
Childcare
A workplace nursery run by or for your employer is exempt. Employer-supported childcare vouchers closed to new joiners on 4 October 2018; people already in a scheme can usually stay in it.
Assets and vouchers
If your employer lends you an asset such as a TV or furniture for private use outside an exemption, the yearly value is 20% of its market value when first provided. Vouchers you can exchange for goods are taxed on their cost to the employer.
What the calculator shows
The take-home calculator does not have a benefit-in-kind input. It assumes a standard 1257L tax code and no taxable benefits, so a payslip with a benefit will show less take-home. To estimate the difference, multiply the benefit's value by your marginal income tax rate. Do not add the benefit to your salary in the calculator: that would also charge employee National Insurance and student loan on it, which do not apply to most benefits. We have not added a benefits input yet; it is something we may add once it can be fully tested.
Frequently asked questions
What is a benefit in kind?
A benefit in kind is something of value your employer gives you that is not paid as salary, such as a company car or health insurance. Most are taxed as if they were extra pay.
Do I pay National Insurance on benefits in kind?
Usually not. Your employer pays Class 1A National Insurance at 15% of the value instead. Cash, cash vouchers and bills your employer pays for you are treated as pay and do attract employee National Insurance.
How much tax will I pay on a benefit in kind?
The benefit's value multiplied by your marginal income tax rate. A £1,200 benefit costs £240 a year at 20%, £480 at 40%, and £252 or £504 at the Scottish 21% and 42% rates.
Why has my tax code gone down?
If the tax is collected through your tax code, HMRC reduces your personal allowance by the value of your benefits. A £1,200 benefit turns 1257L into 1137L.
What is payrolling of benefits in kind?
Your employer adds the value of the benefit to your pay each pay period and deducts the tax through payroll. It is voluntary now and planned to be mandatory for cars, vans, fuel and medical benefits from 6 April 2027.
Check your salary in the calculator
Sources (checked 12 November 2026): HMRC 480: expenses and benefits, a tax guide (chapters 5, 6, 12, 13, 14, 17 and 21, appendix 12); HMRC reporting expenses and benefits (P11D deadlines); HMRC rates and thresholds for employers 2026 to 2027 (Class 1A 15%); HMRC appropriate percentages 2026 to 2027; GOV.UK car fuel benefit multiplier; GOV.UK company vans; HMRC official rates of interest; GOV.UK medical treatment and insurance; GOV.UK trivial benefits; HMRC mandatory payrolling from April 2027. Tax examples from the Take-Home Lab calculator engine for 2026/27. Illustrative only — not tax advice. Rodway Labs · hello@takehomelab.co.uk.