Understanding Employee Benefits, P11D, and Company Cars

Understanding Employee Benefits

Offering benefits to your employees can help you attract and retain top talent — but it’s important to understand the tax and reporting obligations that come with them. In the UK, certain perks are classed as Benefits in Kind (BIKs) and must be reported to HMRC, usually via a P11D form.

Here’s what us at IQ Advisory believe every business owner needs to know.

1. What Is a Benefit in Kind (BIK)?

A Benefit in Kind is any perk or benefit provided to an employee (or their family) that isn’t included in their salary but has a cash value.

Common examples:

• Company cars or vans.

• Private medical insurance.

• Interest-free loans over £10,000.

• Gym memberships.

• Non-cash gifts and vouchers.

• Living accommodation.

These benefits may be subject to Income Tax (for the employee) and Class 1A National Insurance Contributions (for the employer).

2. P11D Reporting — The Basics

Employers must report BIKs to HMRC using a P11D form for each employee who received them during the tax year.

Deadline: 6 July following the end of the tax year.

Tax & NIC: Employees pay Income Tax via payroll adjustment or self-assessment; employers pay Class 1A NIC at 13.8%.

Tip: Some benefits can be taxed through payroll instead of filing separate P11Ds — known as Payrolling Benefits.

3. Company Cars — How the Tax Works

The company car is one of the most common and closely monitored benefits.

Tax is calculated based on:

• Car’s list price (P11D value).

• CO₂ emissions — lower emissions mean lower tax rates.

• Fuel type — electric cars currently enjoy very low BIK rates.

Example:

An electric car with a £35,000 list price and a BIK rate of 2% has a taxable value of £700. This amount is added to the employee’s taxable income.

Tip: Electric vehicles not only reduce tax bills for employees but can also qualify for favourable capital allowances for the business.

4. Other Popular Employee Benefits

• Private Health Insurance: Taxable for the employee; employer pays Class 1A NIC.

• Staff Entertainment: Annual parties up to £150 per head are exempt from tax.

• Cycle to Work Scheme: Tax-efficient benefit that also supports employee wellbeing.

• Mobile Phones: One phone per employee is generally tax-free.

5. Avoiding Common Pitfalls

• Forgetting small benefits: Even low-value items can be taxable unless covered by the “trivial benefits” exemption (£50 or less, not cash or cash vouchers).

• Late reporting: Missed P11D deadlines can result in HMRC penalties.

• Incorrect CO₂ data: Using outdated emissions figures for company cars can lead to underpayment of tax.

How IQ Advisory Can Help

• Benefit reviews: We’ll audit your perks to ensure tax efficiency and compliance.

• P11D preparation and filing: Avoid penalties with accurate, on-time submissions.

• Company car advice: From tax calculations to selecting the most cost-effective vehicles.

• Payrolling benefits: Set up HMRC-approved processes to simplify compliance.

Employee benefits should be a win-win — boosting staff morale while staying cost-effective for the business. With proper planning and expert advice, you can maximise value and minimise tax exposure.

Get in touch with IQ Advisory today to review your employee benefits and P11D obligations.