Tax on employee benefits: what is taxable?

A perk can raise your tax bill even when no cash reaches you. If payroll lists a benefit, compare it with your statement and ask for an explanation of any figure you cannot match. A £1,200 medical premium can mean £240 tax; a £28,000 electric company car can cost less. Start with the paperwork, not the employer’s label.

How benefits tax works

A benefit in kind is something your employer provides beyond cash pay, such as a car you can use privately or medical insurance. The benefits code in Part 3 of the Income Tax (Earnings and Pensions) Act 2003 sets its taxable value. Some benefits use the employer’s cost; others use a fixed formula.

For 2026/27, Income Tax rates in England, Wales and Northern Ireland are 20%, 40% and 45%. The standard Personal Allowance is £12,570, subject to your income. Our examples assume the benefit falls wholly within the stated band, is available all year and involves no employee contribution or salary sacrifice unless stated.

Class 1A is employer-only. But cash allowances, some vouchers, payment of your personal bills and written-off loans can attract employee and employer Class 1 contributions. “No employee NICs” is not a rule for every perk.

A benefit given to your family or household because of your job can be taxed on you. Continued benefits after you leave, such as medical cover, can also have tax consequences.

Which benefits are taxable and which are tax-free?

An employer-provided phone can be exempt; paying your personal phone bill is different. This table covers the rules in force on 1 October 2026. Exemptions depend on their conditions and may not survive salary sacrifice.

Childcare vouchers closed to new joiners on 4 October 2018. Eligible existing members can retain relief; workplace nurseries have a separate exemption. See Tax-free childcare and employer childcare.

Staff discounts are not automatically tax-free. Ask payroll for the applicable valuation rather than assuming the difference from the shop price is taxable. For the employment-rights question, see Unequal employee benefits.

Company cars: the CO₂ formula

Multiply the car’s list price, including relevant accessories, by its “appropriate percentage”. Dealer discounts do not reduce the list price. The percentage depends on CO₂ emissions and, for low-emission cars, electric range. Non-RDE2 diesels attract a four-percentage-point supplement, capped at 37% in 2026/27. Employee contributions and periods of unavailability can affect the final charge.

A pure electric car has a 4% percentage in 2026/27. Plug-in hybrids emitting 1 to 50 g/km range from 4% with at least 130 miles of electric range to 16% below 30 miles. Check your exact band against HMRC’s percentage table.

Vans, fuel and double-cab pickups

Under the 2026/27 rates, unrestricted private van use carries a £4,170 charge; private fuel adds £798. A zero-emission van has a nil van charge.

No van charge arises when restricted-private-use conditions are met. Broadly, the van must be provided mainly for business travel, with private use restricted to commuting and any other private use insignificant. Regular shopping trips do not qualify.

Most double-cab pickups are treated as cars from 6 April 2025. Under HMRC’s transitional rules, qualifying pickups bought, leased or ordered before then retain the old treatment until disposal, lease expiry or 5 April 2029, whichever comes first. Work use alone does not make a pickup a van.

Loans, medical cover and housing

The small-loan exemption applies if combined beneficial-loan balances never exceed £10,000 during the tax year. Above that, the charge is the calculated interest saving on the loans, not merely on the excess over £10,000.

The official interest rate is 3.75% from 6 April 2026. Deduct interest you actually pay. Changing balances and part-year loans require an averaging or precise calculation rather than simply using the highest balance.

Employer-arranged medical and dental insurance is normally taxed on your attributable premium. A £1,200 premium means £240 tax at 20% or £480 at 40%, plus £180 employer Class 1A. Qualifying annual health screening is exempt; qualifying recommended return-to-work treatment has a separate £500 annual exemption. See Reasonable adjustments for disabled workers for wider duties.

Housing can attract an annual-value charge and an additional interest-based charge where the relevant property cost exceeds £75,000. Qualifying job-related accommodation can be exempt, including where residence is necessary to perform the duties. A contractual requirement to live there does not alone establish exemption.

Small perks you can have tax-free

1. Trivial benefits cost £50 or less. They must not be cash or cash vouchers, rewards for work, contractual or provided through salary sacrifice. Close-company directors have a £300 annual cap. A £30 birthday gift can qualify; a £30 performance reward cannot.
2. Annual events have a £150 per-head limit. A qualifying party must be open to all staff, with provision for separate locations or departments. Divide total cost by all attendees, including guests. Two £80 events total £160, so both cannot qualify together; one can be exempt and the other taxable. A single £160 event fails for its whole value, not merely £10.
3. Work-related benefits have specific conditions. Qualifying phone provision, workplace parking, training and cycle-to-work benefits can be exempt, as can up to £500 of qualifying employer-arranged pensions advice a tax year.

Qualifying trivial benefits and annual events need no tax, NICs or reporting. Their limits are exemptions, not allowances to deduct from larger taxable perks.

Mileage in your own car: the 55p rate

For business journeys in your own car or van, Approved Mileage Allowance Payments are tax-free at 55p for the first 10,000 miles and 25p thereafter from 6 April 2026. The increase was announced on 21 May 2026, retrospectively. Ordinary commuting does not qualify. Motorcycle and cycle rates remain 24p and 20p.

Company-car advisory fuel rates are different. From 1 September 2026, petrol rates are 14p to 27p and diesel 15p to 22p, depending on engine size. Electric rates are 7p for home charging and 15p for public charging. See HMRC’s tables and Driving for work.

Salary sacrifice and the higher-of rule

Since 6 April 2017, most salary-for-benefit exchanges use the higher of salary forgone and normal cash equivalent. Optional remuneration arrangements, or OpRA, also cover some cash-or-benefit choices. They can remove exemptions that apply to perks provided on top of pay.

HMRC’s salary-sacrifice guidance retains exceptions for registered pension contributions, qualifying pensions advice, cycle-to-work benefits, workplace nurseries and eligible legacy childcare arrangements. Cars emitting no more than 75 g/km use the normal car-benefit valuation rather than the higher-of rule. That does not make those cars tax-free.

Exchanging £1,500 salary for a qualifying employer pension contribution currently avoids employment Income Tax and NICs, subject to pension tax limits. An announced NICs cap is due in April 2029, not now; see the timetable below and Workplace pensions.

Salary sacrifice must not reduce cash earnings below the National Minimum Wage. Check which salary your employer uses for pension contributions and salary-linked entitlements.

Working from home: what you can still get

From 6 April 2026, relief for non-reimbursed additional homeworking expenses was removed. Employer reimbursement remains available.

Under a qualifying homeworking arrangement, your employer can pay £6 a week towards additional household costs without evidence of the amount spent. Higher payments need evidence of qualifying costs. The exemption does not oblige your employer to pay. See Health and safety for home and hybrid workers for equipment and safety duties.

P11Ds now and planned payrolling changes

Your employer files P11D for reportable expenses and benefits that are not properly payrolled. For 2026/27, it must report those benefits and give you the details by 6 July 2027. Use them in Self Assessment if required; otherwise HMRC normally collects tax through your PAYE code. Check the value and benefit period.

Voluntary payrolling replaces P11D for eligible benefits, but not the employer’s P11D(b) Class 1A declaration. For 2026/27, P11D(b) is due by 6 July 2027; Class 1A payment by 22 July electronically or 19 July otherwise. See HMRC’s deadlines.

A PAYE Settlement Agreement lets employers settle tax and 15% Class 1B on qualifying minor, irregular or impracticable items. It is not for routine company-car or medical benefits. Agree it by 6 July after the tax year; pay by 22 October electronically or 19 October otherwise.

Late P11D(b) returns can attract £100 for each month or part-month, per 50 employees or part-batch of 50. Late payment can also attract interest and penalties.

1. 6 Apr 2027Planned: mandatory payrolling, phase one

   Medical benefits, company cars, vans and car and van fuel are due to enter payroll reporting for Income Tax and employer Class 1A. A proposed one-year penalty easement covers non-deliberate inaccuracies, not all penalties.

2. 6 Apr 2028Planned: phase two

   Most remaining in-scope benefits join. Employer loans and accommodation stay outside mandatory payrolling for now, using year-end reporting.

3. 6 Apr 2029Announced: pension salary-sacrifice NICs cap

   Employee and employer NICs are due on salary-sacrificed pension contributions above £2,000 a year. Income Tax relief is to remain.

4. 6 Apr 2030Scheduled: employee car ownership rules

   Certain Employee Car Ownership Schemes enter the car-benefit rules. Qualifying existing arrangements have protection until variation, renewal or 6 April 2032, whichever is earlier.

Payrolling adds the benefit’s value for calculating PAYE, not as cash paid to you. Check your tax code when your employer switches, so the same benefit is not taxed twice. See Employer National Insurance and payroll.

Directors, agency workers and Scottish taxpayers

Employees, directors and other office-holders fall within the benefits rules. Employment-rights status does not itself settle tax status: agency rules can treat workers as employees for tax. Genuinely self-employed people use different business-income and expense rules.

Benefits law and NICs apply UK-wide, including Northern Ireland. Scottish taxpayer status changes the Income Tax rates, regardless of your office location. The 2026/27 Scottish rates are 19%, 20%, 21%, 42%, 45% and 48%; check the bands in HMRC’s tables.

A £1,000 benefit wholly in Scotland’s 42% band costs £420 tax, compared with £400 in a 40% band elsewhere. Crossing bands or losing Personal Allowance can change the calculation. Welsh rates match England’s for 2026/27.

If a deduction for meals, kit or accommodation may have pushed your pay below the minimum wage, keep the payslip and rota. Ask your union for help: Unite, UNISON, USDAW or GMB may be relevant to your workplace. You can also contact Citizens Advice or a law centre, report suspected underpayment through HMRC’s minimum-wage complaint route, and ask Acas about early conciliation if wages are owed. Do not assume the tax calculation settles whether a deduction was lawful.