How private medical insurance affects your tax?

Small Business Insight

7 March 2019

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. This is because the business would be eligible for tax relief on the costs so far as they relate to employees.

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.

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The questions and answers below 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 a tax relief?

Yes, this would be classed as business expenditure on which the company can claim tax relief. However, don’t forget that as a director you would be treated as receiving a taxable benefit. 

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 a 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 healthcare cover 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. Alternatively you may choose not to include the benefit on the employee’s P11D form and register with HMRC to  payroll it instead.  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 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.
  • 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 on their private healthcare cover benefit?

When you provide healthcare cover to your employees, it’s considered a ‘benefit in kind’. Employees will need to pay tax on the benefit amount.

Is the 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%.

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