Your situation
Company benefits and your tax code
A benefit in kind is taxed through your salary: HMRC takes its value off your allowance, and the code falls.
Your situation points to
1100L
Your current code takes about £316.00 too little this year.
| Tax due for the year | £4,800.00 |
| Taken with 1257L | £4,484.00 |
| Taken with the expected code | £4,798.00 |
| Personal Allowance | £12,570 |
Estimate on employment and pension income only. HMRC sets your code from its own records; savings, property and other income can change it.
Company benefits such as a car you can use privately, fuel for personal journeys, medical insurance, accommodation or a cheap loan are taxed through PAYE rather than billed separately. Your employer works out the yearly value of each benefit, and HMRC takes that value off your Personal Allowance before turning what is left into your code (GOV.UK, tax on company benefits). GOV.UK's own example is medical insurance worth £1,570: the allowance of £12,570 drops to £11,000 and the code becomes 1100L (what your tax code means). On a salary of £35,000, that change costs £314.00 over 2026 to 2027, about £26.17 a month, which is 20% of the benefit. When benefits are worth more than the whole allowance, the code turns into a K code and an amount is added to your taxable pay instead. Some employers tax benefits directly through payroll, in which case no P11D is sent for them.
Company benefits and your code
New code
1100L
| Extra tax over the year | £314.00 |
| Each month | £26.17 |
| Tax-free amount left | £11,000 |
Rules read on HMRC’s texts by Radif Partners · Editorial policy · Method
How a benefit becomes a smaller number
HMRC builds a code by starting from your allowance and subtracting anything it needs to tax through your pay, then dropping the last digit. A benefit in kind is one of those subtractions. If you receive £4,000 of benefits, your payroll gets £8,570 of tax-free pay instead of £12,570, and the extra tax comes out evenly across the year. You do not pay a separate bill for the benefit; it simply rides on your salary.
What a benefit costs you depends on your top rate, not on the benefit alone. On £35,000 the lost allowance is taxed at 20%. On £60,000, the same medical insurance moves the code to 1100L and costs £628.00 a year, because the slice of pay it exposes is taxed at 40%.
The table shows four benefit values on a £35,000 salary in England or Northern Ireland, compared with the standard code.
| Benefit value a year | Code | Extra tax a year | Extra each month |
|---|---|---|---|
| £1,570 | 1100L | £314.00 | £26.17 |
| £4,000 | 857L | £800.20 | £66.68 |
| £8,000 | 457L | £1,600.00 | £133.33 |
| £15,000 | K243 | £3,003.80 | £250.32 |
The last row is the turning point. Benefits worth more than the allowance leave nothing to give, so the code switches to K and the number shows what is added to pay (K in your tax code). An employer using a K code can never take over half of your pre-tax pay in any period.
K code: tax and the 50% limit
Tax this month
£620.60
| Added to pay | £203.25 |
| Limit: half the pay | £1,450.00 |
| Not taken because of the limit | £0.00 |
Which benefits count
A company car you or your family use privately is taxed on its value to you, which turns on the cost of the car, its fuel type and its CO2 emissions. Fuel your employer pays for personal journeys is a second benefit. Medical insurance is normally taxed on the premiums. Interest-free or cheap loans above a set size, and accommodation provided by your employer, are taxable too. Some benefits are free of tax, including meals in a staff canteen, a mobile phone and workplace parking, so they never reach your code.
When a benefit starts mid-year, you might see an emergency code for the rest of that year while HMRC catches up; GOV.UK calls this normal (emergency tax codes). Check that the benefit shows in your HMRC online account at the right value, and correct it there if not.
P11D, payrolled benefits and your records
An employer can report benefits after the year on a P11D, or it can tax them through payroll as it goes. In the second case no P11D is needed and the employer writes to you to explain how it works (P11D on GOV.UK). Either way, at the end of each tax year you should receive details of the benefits reported for you. Keep them: they are what you compare with your code if the figures look wrong.
When a benefit ends, such as handing back a company car, tell HMRC so that the deduction comes out of your code. Without that, your allowance stays reduced and too much tax is taken until the record is fixed. Any new code reaches you and the employer within 15 working days, and if you overpaid in the meantime the excess is usually refunded through payroll.