Benefits in kind tax planning can give business owners and employers another way to think about how money and value move from the organisation to the people working in it.

Salary and dividends often get most of the attention, particularly in private companies.

However, they are not the only options available.

Benefits in kind can form part of a wider remuneration strategy for owner-directors and employees, helping us think about tax efficiency, cost efficiency and the overall value of the employment package.

In this episode, we explain what benefits in kind are, why they can be useful, how they compare with salary and dividends, and some of the advantages for both employers and employees.

About this episode

Managing tax efficiently and legally is part of running a business properly.

That applies whether you are an owner-director looking at how to take value from your company or an employer thinking about how to reward and retain your team.

Benefits in kind are sometimes overlooked because the default conversation tends to revolve around cash pay.

For private company owners, that often means salary and dividends.

For other employers, the focus may simply be on wages.

However, a well-structured benefits package can add another dimension to that conversation.

What are benefits in kind?

Benefits in kind are benefits or perks provided to employees or directors outside their normal cash salary.

They still have a financial value.

Examples discussed in the episode include:

company cars
private medical insurance
living accommodation
low-interest or interest-free loans
gym or club memberships
mobile phones
workplace parking

The important point is that the employer provides something of value rather than simply giving the employee additional cash.

Some benefits are taxable.

Others can qualify for specific exemptions when the conditions are met.

So “benefit in kind” does not automatically mean “tax free”.

“When you structure it correctly, do things correctly in the beginning, benefits in kind are a powerful tool both for yourself and your employees.”

Why benefits in kind can be tax efficient

One of the main arguments in the episode is tax efficiency.

Imagine you want to pay for something personally, perhaps a gym membership.

If you fund it from your own pocket, you first need to earn enough money after Income Tax and National Insurance to cover the cost.

If the company provides the benefit instead, the tax treatment can be different.

Many taxable benefits do not attract employee Class 1 National Insurance in the same way that extra salary does.

Instead, the employer may have a Class 1A National Insurance liability.

For 2026/27, the Class 1A rate on expenses and benefits is 15%.

The employee may still pay Income Tax on the taxable value, so this is not about making taxable benefits magically tax free.

The point is that the overall tax and National Insurance result can be different from simply paying enough extra salary for somebody to buy the same item personally.

Think about the gross salary needed to buy something personally

This is one of the most useful ways to look at the strategy.

Do not simply compare a £100 benefit with £100 of salary.

Ask how much gross salary the employee would need before tax and National Insurance to end up with enough money in their pocket to buy that £100 item.

That gives us a more realistic comparison.

Depending on the benefit and the employee’s tax position, the employer providing the benefit can produce a different result from paying the equivalent amount as additional salary.

That is where the planning opportunity begins.

Cost efficiency matters too

Tax is only one part of the picture.

The episode also highlights the commercial buying power of an employer.

A company providing benefits to several employees may be able to negotiate a better rate than each individual could obtain separately.

For example, an employer may be able to negotiate corporate pricing for:

private medical insurance
gym or fitness memberships
other employee benefit packages

That can create a genuine commercial saving before we even look at the tax position.

So the question is not only, “Can this save tax?”

It is also, “Can the company buy this more efficiently than the employee can?”

Benefits can improve the overall employment package

Money matters to employees, but the wider employment package matters too.

Benefits can provide value beyond the amount that appears in somebody’s bank account each month.

Health cover, parking, phones, professional development and other non-cash benefits can all influence how people feel about their job.

That means benefits can also play a role in attracting and retaining good people.

For employers, the aim is to create a package that employees genuinely value rather than simply adding perks for the sake of it.

Owner-directors can use the same thinking

The strategy is also relevant to small private companies where the owner is a director and employee.

If that describes you, it is easy to focus entirely on how much salary to take and how much to draw as dividends.

Those are important decisions, but they do not have to be the end of the conversation.

Ask what costs you currently pay personally that the company could legitimately provide as part of your remuneration package.

Then look at the tax treatment of each item properly before making a decision.

That is a more rounded approach than assuming every pound must leave the company as either salary or dividend.

Salary and dividends are still important

The episode does not suggest that salary and dividends are wrong.

They remain common ways for private company owners to take money from their businesses.

Salary is normally a deductible employment cost for the company, subject to the relevant Corporation Tax rules, but it can also create Income Tax and National Insurance costs.

Dividends work differently.

They come from profits available for distribution and do not reduce the company’s taxable profit in the way salary normally does.

For 2026/27, the dividend allowance is £500.

Dividend income above the available allowance is taxed at 10.75%, 35.75% or 39.35%, depending on the individual’s tax band.

For a broader explanation of how dividends work, see our guide to dividends for company directors.

Benefits give us a third option to consider

This is really the central planning message.

Instead of asking only:

How much salary should I take?
How much dividend should I take?

we can also ask:

Are there useful benefits the company could provide?
Would those benefits replace costs I currently pay personally?
What tax and National Insurance treatment applies?
Could the company buy them more cheaply?
Would employees actually value them?

“The traditional route salary and dividends, nothing wrong with that as a default approach, but for me, it’s quite limiting.”

This does not mean benefits always beat salary or dividends.

It means we should compare the options rather than defaulting to one approach without thinking.

Not every benefit gets the same tax treatment

Benefits in kind need to be looked at individually.

Private medical insurance, company cars, accommodation, loans and club memberships can all have different valuation, reporting and tax rules.

Some taxable benefits can create an Income Tax charge for the employee and Class 1A National Insurance for the employer.

Others can qualify for specific exemptions.

That is why we should not simply label something “a company benefit” and assume it will automatically save tax.

If you want the broader catalogue of taxable and tax-free options, see Saving Tax with Company Benefits.

Examples of benefits that can be tax free

The episode gives a few examples as a taster.

One is a mobile phone.

Where the employer provides one mobile phone or SIM to an employee and the contract is between the employer and the supplier, the benefit can be exempt from tax and National Insurance.

Workplace parking can also be exempt where the employer provides parking at or near the employee’s workplace.

Workplace nursery provision can qualify for an exemption when the relevant conditions are satisfied.

Older employer-supported childcare voucher schemes can also retain favourable treatment in some cases, but the exemption is generally restricted to employees who joined the qualifying scheme and had their pay adjusted on or before 4 October 2018.

So childcare vouchers should not be treated as a generally available new tax-free benefit.

Company cars need their own calculation

Company cars are another classic benefit in kind.

However, the tax treatment depends on the vehicle and its benefit value.

Factors such as the car’s list price, emissions and power type can affect the taxable benefit.

That makes company cars a separate planning decision rather than something we can deal with using a simple general rule.

For a deeper look at that area, see Buying Your Car Through Your Business.

Remember the reporting side

If a benefit is taxable, there may also be reporting and payroll obligations.

Employers can report taxable benefits through payroll where the relevant arrangements are in place, while other benefits may still need year-end reporting.

Class 1A National Insurance also needs to be dealt with where it applies.

So good benefits planning has two parts:

choosing benefits that make commercial and tax sense
making sure the tax and reporting treatment is handled correctly

A practical way to review your benefits strategy

Start with the real-world cost rather than the tax rule.

List what people already pay for personally. Look for costs that employees or owner-directors genuinely value.
Check whether the company could provide them. Consider commercial pricing and employer buying power.
Check the tax treatment. Work out whether the benefit is taxable, exempt or subject to special rules.
Compare it with salary. Ask how much gross salary would be needed to fund the same personal cost.
Compare it with dividends where relevant. For owner-directors, look at the whole extraction picture rather than one route in isolation.
Deal with the paperwork. Make sure payroll, reporting and company records support the arrangement.

That gives us a much stronger basis for deciding whether the benefit is genuinely worthwhile.

FAQs

What is a benefit in kind?

A benefit in kind is a non-cash benefit or perk provided by an employer to an employee or director. Examples include company cars, medical insurance, accommodation and certain loans.

Are benefits in kind tax free?

Not automatically. Some benefits are taxable, while others qualify for specific exemptions when the conditions are met.

Do employees pay National Insurance on benefits in kind?

Many taxable benefits do not attract employee Class 1 National Insurance in the same way that salary does. Instead, the employer may pay Class 1A National Insurance. The exact treatment depends on the benefit.

What is the Class 1A National Insurance rate for 2026/27?

The Class 1A National Insurance rate on expenses and benefits for 2026/27 is 15%.

Can a company pay for my gym membership?

It can, but ordinary gym membership is normally a taxable benefit rather than automatically tax free. You should compare the overall cost and tax position with paying for it personally.

Can a company provide a mobile phone tax free?

One employer-provided mobile phone or SIM can be exempt where the employer contracts directly with the supplier and the relevant conditions are met.

Is workplace parking a taxable benefit?

Parking provided at or near the employee’s workplace can qualify for an exemption.

Are childcare vouchers still tax free?

The old employer-supported childcare voucher exemption is generally limited to qualifying legacy schemes. Workplace nursery provision can still qualify for separate favourable treatment when the conditions are met.

Should I take benefits instead of salary or dividends?

Not automatically. Benefits should be considered alongside salary, dividends and the wider remuneration package. The right mix depends on the company, the individual and the specific benefit.

Episode Timecodes

00:00 – Why benefits in kind belong in tax planning
00:43 – Setting the benefits-in-kind framework
01:06 – Owner-directors, employers and employee rewards
01:56 – What benefits in kind are
03:05 – Tax efficiency and paying personal costs
04:16 – Cost efficiency and corporate buying power
05:15 – Employee satisfaction and retention
06:38 – Salary and dividends as the usual approach
07:22 – Dividend limits and company profits
08:41 – Salary, tax and Corporation Tax
08:59 – Benefits as a third remuneration option
09:45 – Tax-free benefit examples
10:20 – Reviewing benefits in your own business

Related episodes and guides

Key takeaway

Benefits in kind tax planning is not about finding a magic tax-free way to pay for everything.

It is about widening the conversation.

Salary has one tax treatment.

Dividends have another.

Benefits can create a third option, with their own tax, National Insurance and commercial consequences.

When the company can provide something an employee already values, buy it efficiently and structure it correctly, benefits can become a useful part of the wider remuneration package.

Compare the options rather than defaulting automatically to cash.

Plan it. Do it. Profit.

Further Support

If you want to review the way you take money from your company or the benefits you provide to employees, you can contact us for an initial chat.

We can help you compare salary, dividends and company benefits, understand the tax treatment and put the right payroll and reporting processes in place.

You can also use our free online business calculators to support your wider financial planning.

For more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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Benefits in Kind Tax Planning: Beyond Salary and Dividends