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.

1. List what people already pay for personally. Look for costs that employees or owner-directors genuinely value.
2. Check whether the company could provide them. Consider commercial pricing and employer buying power.
3. Check the tax treatment. Work out whether the benefit is taxable, exempt or subject to special rules.
4. Compare it with salary. Ask how much gross salary would be needed to fund the same personal cost.
5. Compare it with dividends where relevant. For owner-directors, look at the whole extraction picture rather than one route in isolation.
6. 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

• Saving Tax with Company Benefits
• Dividends Explained for Company Directors
• Buying Your Car Through Your Business

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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Managing your taxes efficiently and effectively is an obligation that all business owners should be taking on. If you're an employer, but not necessarily a business owner, that obligation also is on your shoulders to make sure that you pay the requisite amount of tax, not indulge in tax evasion, and one overlooked strategy

for extracting money out of a company for the business owners, and also to benefit your staff and employees, is the use of benefits in kind. In this week's I Hate Numbers podcast, I'm going to be looking at what benefits in kind actually are, the merits of adopting such a strategy, comparing and contrasting that to the use of, for private companies, salaries and dividends,

and the benefits that you have by adopting an effective benefits-in-kind strategy. In next week's podcast, I'll throw some numbers around to reinforce. This week is all about setting the framework - all part of the Plan it. Do it. Profit. philosophy from Numbers Knowhow and I Hate Numbers. Let's crack on with the podcast.

Now, over the last three decades, with my business finance coach hat on and being a UK tax advisor, I'm often working with my clients to find the most efficient ways they can manage their finances and extract money from their companies. When I work with social enterprises, charities, organisations, they are still employers, and they want to make sure they can do something that rewards their employees, recognises

the benefit their employees bring to their companies, but actually have the most tax-efficient way they can remunerate them without actually having too tight a squeeze on their bank balances. Now, this contributes to employee satisfaction and retention. And what's not to love about that? I will mention some examples of tax-free benefits, but again, the goodies will all come for next week's podcast episode.

So stay tuned, folks, and check out the show notes at the end. Now, effectively, benefits in kind are perks or advantages provided to employees that do not form part of their normal salary, normal wage package, but they have a monetary value. The rationale, by the way, for the explosion and the growth in benefits in kind is because benefits in kind do not normally attract employees national insurance.

What that means is potentially those benefits, when provided, if you compare it to the alternative for the individual to fund those particular benefits, can be very beneficial not just for the company but also the individual as well. Now, these benefits range from company cars, medical insurance, provision of a company house.

If you're in that situation where perhaps your company has got a plane and it allows you to use that plane for private use, that can also be thrown into the mix as well. Loans that are provided at either no interest rate at all or at a very notional interest rate are also benefits in kind. Anything that confers a personal benefit to an individual provided by their employer, will be generally speaking within a benefit-in-kind regime.

Now remember, the relevance for small businesses out there, owner directors, owner-employees of private companies who may build up those companies, want to reward themselves accordingly, then this also has an extra bit of juice added into it. When you structure it correctly, do things correctly in the beginning, benefits in kind are a powerful tool both for yourself and your employees. The various merits are as follows, no particular order of merit, but tax efficiency is given as one of the main advantages of benefit in kind. It's got potential for significant tax savings, and I wanted to introduce the idea that if you wanted to, for example, go to the gym indulging gym membership, think if you're the individual employee, and that applies if you are a small private company, you're the registered employee of your business, for you to fund that out of your personal money.

Consider how much do you need to earn, how much you need to draw out the company that, after tax, gives you the money to pay for that subscription. That's the way that you should be considering these. So typically, somebody who's on a wage, by the time you take tax and national insurance into account, 70 pounds in their pocket could crudely speaking be the equivalent

of about 100 pounds plus in gross terms for the employer, plus the appropriate national insurance for employers on top. And in that situation, it makes sense to certainly explore it more. Now I'll talk about some examples of tax-free benefits towards the end. The second thing is in terms of cost efficiency. Now, companies providing benefits to a wide workforce, it can be cheaper for them when negotiating with suppliers to get bulk membership, providing a health insurance, for example, to a group of employees or memberships

can be really beneficial and it's cheaper for the company to engage in that transaction than it would be for the individual employee. Those corporate rates, those corporate discounts can usually be accessed by companies, not necessarily by individuals. And that's a win-win situation. Now, things like gym membership, spa membership, much as we'd love them to be, you know, allowable expenses normally, they aren't normally because of the myriad of tax rules that go about them, but you can still enjoy that benefit.

The company can benefit, the company gets a tax-deductible allowance, and the employee gets to enjoy that particular benefit. The third area to look at is about employee satisfaction and retention. There have been many studies showing that money in itself does not necessarily motivate employees. Money is important, nobody's dismissing that factor, but it's other elements as well that go into the pay packet, that go into the remuneration structure, that can also be very attractive.

Offering attractive benefits, whether it's medical insurance, parking, provisions of phones, or spa days, gym membership, and all the rest of it, can be a key differentiator in terms of attracting and keeping on to good talent. As an aside, folks, on average, it's three times more expensive to recruit an employee than it is to retain your existing staff. Employees do value benefits.

They enhance the impact on the quality of their life and provide real value beyond what they get paid on a weekly or monthly basis into their bank account through their salary. By giving a range of benefits in kind, your business can offer and create a more interactive employment package without necessarily having to think too much about employers national insurance too much and about other taxes as well. Flexible working arrangements, professional development opportunities, and other non-cash perks can be added to the mix to make the job offer more appealing.

One thing I'd like to do at this stage is to gear towards private companies. Those are private companies i.e. structured by shares, where the typical route for most individual directors, employees, owners of the company is to extract the money for a salary, and dividends route is the default recommendation for a lot of accountants to offer their clients to say, take the money out through salary and dividends.

Now, there's nothing wrong inherently without strategy, typically, a notional salary would be recommended such that you still get credits for your national insurance. As an employee, you minimise the burden of employer's national insurance, and as a working number, that figure is around about nine thousand one hundred pounds. Anything over that at current rates can be subject to your employer's national insurance.

So again, this is not a detail what are the numbers these things change, but that's the typical route, and then the rest of it is taken out by way of dividends. Now nothing wrong with that as a very simple approach here. The problem is two-fold: first of all, dividends, which are distributions of profits, are only allowable if you've got what's called positive reserves in your company

i.e. if you've made profits over a period of time and you've got reserves that have built up, that's tick number one. And secondly, obviously, you've got to have the cash. Now, dividends are not business expenses. So therefore, the company effectively doesn't get any corporation tax deduction for them. If you're listening from outside of the UK, typically whether you're an LLC or a similar type of organisation, then the rules for salary dividends

tend to be quite similar in your tax jurisdiction as well. So dividends, in the hands of the individual, form part of their personal income. We do have a dividend allowance in the UK of a thousand pounds, quite mean if you ask me, but there it is. And effectively, the rate of tax will be in the region of about 9 percent at the lower rate.

If you become a higher rate taxpayer or additional tax rate payer, that rate can go up to as much as an eye-watering just under 40%. And that's a quite a large amount of money. Take into account there's no corporation tax break. Take into account that you could be potentially paying dividend tax of nearly 40%.

Then that is quite a lot of tax to pay on that income. If you take that money out of salary, the salary, typically will be subject to tax at 20%. And again, a lot depends on your own particular situation, but you've got tax on both sides. Salary is a tax-deductible. So the company does save corporation tax as a result.

Now the third thing to factor in is the benefits in kind. And again, the traditional route salary and dividends, nothing wrong with that as a default approach, but for me, it's quite limiting. It's not very imaginative, and there's money being left on the table there. The biggest advantages, as I said, or certainly one of them for a benefits in kind, is the employee is not subject to employee's natural insurance. The benefit in kind in the main tends to be a tax-deductible for the company.

So you've got corporation tax savings as well. And the overall equivalent national insurance for employers on a benefit in kind, if it is subject to that, will be much lower than the equivalent salary would need to be. Now, just to give you a taster, there are certain benefits you can provide tax-free to your employees, so have these on me.

Obviously, don't literally mean have these on me, I can't provide them, but in terms of the comments, so things like mobile phones, if the contract is in the name of the company provided to an individual employee, will be tax-free. Even though you make personal calls from that, that is exempted. Work-based parking also qualifies for a tax deduction,

it's a zero-benefit in kind. Childcare nurseries, vouchers, are also another example. In next week's podcast, I'm going to be exploring that in more detail and chucking a few numbers in your direction. Now, folks, if you liked what you've heard, and I hope you have, let me know what your thoughts are. Do you provide any benefits package in your company,

in your small business? Are you an employee or an employer who is thinking about this? If so, I'd like to hear your thoughts. Share it with those who you feel will benefit. And I'd like you to check out the show notes to have a gander at the Numbers Knowhow community, based for small businesses, artists, creators, and coaches, to give them that financial support

that follows that philosophy of Plan it. Do it. Profit. Until next week, folks, happy benefiting. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.