Want to provide medical benefits for your employees? What to know about Benefits in Kind

A benefit in kind (BIK) refers to when an employer provides a non-cash-based benefit to employees as part of a company compensation package. A common example of this is providing private medical & dental insurance for your employees.

Due to the current strain of NHS services, and growing waiting lists, offering Benefits in Kind like access to private healthcare can be a valuable and attractive benefit, helping employees access faster treatment and improved peace of mind.

From an employer's perspective, providing medical or dental insurance as a BIK can play a key role in retaining staff, supporting wellbeing, and rewarding loyalty.

In this blog we'll explore the tax and reporting requirements involved, and what you need to consider if you're offering (or planning to offer) these benefits.

What counts as Benefits in Kind?

If your company pays for or provides any of the following to employees (including directors), it's likely to be classed as a Benefit in Kind:

• Private medical insurance or dental insurance
• Cash plans for optical, dental, or physiotherapy treatment
• Company cars (and fuel for private use)
• Interest-free or low interest loans over £10,000 (e.g. season ticket loans)
• Living accommodation or housing benefit

Reporting and Paying tax on BIKs

Most BIKs must be reported to HMRC and may trigger tax charges for the employee and employer. Here's how it typically works:

• Report the benefit on a  P11D form  (unless you're registered to payroll benefits)
• Pay Class 1A National Insurance on the value of the benefit
• The employee pays income tax on the BIK value via self-assessment or tax code adjustment

Special rules for medical benefits:

• If you pay the provider directly: report on P11D and pay Class 1A NIC
• If the employee arranges treatment but you pay the bill: report on P11D and pay Class 1 NIC (through payroll)
• If you reimburse the employee, it's treated as earnings, subject to PAYE tax and Class 1 NIC via payroll

Exemptions

Not all Benefits in Kind are taxable, some are exempt if specific conditions are met. Applying these correctly can reduce both the employer's and employee's tax burden. Examples include:

• One annual health screening or medical check-up per employee
• Eye tests and glasses or contact lenses required for screen work under health and safety rules
• Medical treatment abroad, if your employee is working overseas
• Up to £500 for medical treatment to help an employee return to work after illness or injury (if recommended by a health professional)
• Low-cost benefits under a valid salary sacrifice arrangement, where structured correctly
• Trivial benefits (e.g. a seasonal gift under £50, meeting specific criteria), not reportable or taxable

These exemptions can be valuable, but the rules are detailed, getting it wrong can lead to unexpected liabilities. We can help you assess which benefits to offer and ensure they're applied correctly.

Weighing up employer costs and employee value

From a business perspective:

• Most BIKs, including medical insurance, are tax-deductible for the company
• However, employees may still face a personal tax charge on the benefit
• Some employers choose to gross-up the benefit (i.e. cover the employee's tax), which increases the overall cost

Communicating the value of these benefits clearly to staff is key, particularly if they'll see changes to their tax code or take-home pay.

Summary: Are BIKs worth offering?

Offering Benefits in Kind can:

• Enhance recruitment and retention
• Improve staff wellbeing and satisfaction
• Create a more attractive total reward package

But it's important to factor in:

• The tax implications for both employer and employee
• National Insurance liabilities
• P11D reporting or payrolling requirements

How we can help

We can support you with:

• Reviewing your BIKs to check what's taxable
• Structuring benefits to minimise tax
• Submitting P11Ds or setting up payrolling of benefits
• Calculating Class 1A NIC liabilities