How private medical insurance affects your tax?

A straightforward guide for small businesses

Private healthcare cover can be an attractive benefit for you, your employees and your business.

It offers swift access to private medical treatment if you or your employees are faced with illness, which can mean less time off work, a more productive workforce, and cost savings for your business.
In some instances it can even be beneficial from a tax perspective, for businesses to take out a business private healthcare plan rather than a personal one, as you may also be eligible for tax relief, depending on your company structure.

But don’t forget, when you offer private healthcare cover to your employees as a benefit, it will have certain tax implications for you and your staff.

The below questions and answers are designed as a guide only and details may change at any time. For advice on specific cases, you should always speak to HM Revenues & Customs (HMRC), your accountant or tax adviser.

I’m the director of a Limited Company, am I eligible for tax relief?

Yes, directors or owners of limited companies are eligible for tax relief as this is classed as business expenditure. Therefore, in this instance, it would benefit the business to pay for the private healthcare cover through the business bank account.

I own a small business that’s not a Limited Company (unincorporated).

For unincorporated businesses, the cost of providing healthcare cover for employees is deductible when calculating taxable profits. That’s because it’s classed as a valid expense of the business and therefore eligible for tax relief.

Am I eligible for tax relief as the owner of the unincorporated business?

As the owner of the business, a private healthcare plan for yourself would be classed as personal expenditure. This means you won’t be able to claim it as a business expense.

Do I need to report this to HMRC?

Yes. At the end of each tax year, you’ll need to complete and submit a P11D form for each employee, which states the benefits they’ve received. You’ll also need to complete and submit a P11D(b) form and pay Class 1A National Insurance on the value of the benefit. (The National Insurance rate is currently 13.8%.)

What is a P11D form?

A P11D is a form issued by HMRC. It’s also known as the ‘P11D expenses and benefits form’.

At the end of each tax year, employers have to complete a P11D for every employee who:

• Earns over £8,500 and;
• Has received expenses or benefits in addition to their salary. (This doesn’t include routine business expenses and benefits like travel and company car fuel.)

Difference between a P11D and a P11D(b)

• A P11D is the end-of-year expenses and benefits form an employer needs to report for employees who earned £8,500 or more.
• A P11D(b) is used to report the amount of Class 1A National Insurance contributions due on expenses and benefits you’ve provided to employees.

Will my employees need to pay tax on their private healthcare cover benefit?

When you provide healthcare cover to your employees, it’s considered a ‘benefit in kind’. If an employee earns more than £8,500 annually, they’ll need to pay tax on the benefit amount.

Is healthcare cover subject to Insurance Premium Tax (IPT)?

Yes it is. Healthcare cover is subject to IPT at the standard rate, which from June 1st 2017 is 12%.