A benefit in kind is a non-cash perk an employer provides on top of salary, such as a company car, private medical cover or interest-free loan. Most carry a cash equivalent value that is taxed as if it were extra income.
In one line: A benefit in kind is a taxable non-cash perk from an employer, valued and taxed like additional pay.
How a benefit in kind works
HMRC sets rules for valuing each benefit, then taxes the cash equivalent at the employee's normal rate. The value is usually collected by adjusting the tax code or by payrolling the benefit through wages.
A basic-rate employee with a benefit in kind valued at 4,000 GBP pays income tax of 20% on that figure, around 800 GBP for the year. The employer separately pays Class 1A National Insurance on the same value.
Some benefits are exempt, including certain pension contributions and limited workplace facilities, so not every perk creates a tax charge.
Benefit in kind vs salary sacrifice
A benefit in kind adds value on top of salary and is taxed accordingly. Salary sacrifice instead exchanges cash pay for a benefit, which can change how, and whether, tax and National Insurance apply.
Many benefits in kind are reported on a P11D, although employers increasingly payroll them. Where a benefit is provided through salary sacrifice, anti-avoidance rules can still tax it on the higher of the cash given up or the benefit value.
Primary source: GOV.UK: Expenses and benefits A to Z