Employees in the UK are chargeable to income tax on their net taxable earnings. These earnings are made up of the employees’ cash earnings, such as their salaries, wages, and any bonuses, as well as any benefits-in-kind they might receive.

Benefits-in-kind are non-cash earnings that are given to an employee in addition to their wages. Common examples are medical insurance and company cars.

The default rule 

The value of the benefit is the ‘cash equivalent’ of the benefit. The cash equivalent is the amount that the benefit-cost the employer, less any amounts that the employee contributed towards it. The cost to the employer may be an external cost, such as providing membership to a club.

An example of an external cost would be the employer providing medical insurance to the employee. If this insurance cost the employer £2,000 per year, this would be the cost to the employer.

Other rules 

Not all benefits, however, are able to use the default rule. Company cars are taxable depending on a combination of factors, including the car’s CO2 emissions. The emissions level gives a percentage that is applied to the list price in establishing the benefit-in-kind. The same percentage is used to value the fuel benefit. Living accommodation depends on whether the property is rented or owned but is generally based on the annual value. There is an extra charge where the property’s historical cost was over £75,000.
Other valuation methods are used for interest-free employee loans, employees using and being gifted employer-owned assets and employer-provided vans.


It is important to know which benefits-in-kind are taxable and which are not. There are several benefits in kind that are not taxable but very useful, such as mobile phones, eye tests, and glasses.