UK companies may have the option to purchase a business health insurance policy that can cover their employees for private medical treatments and services. This provides employees with a benefit while reducing the company profits that can be taxed, but other implications need to be understood before a company decides to offer this to their workforce.
Please speak to an accountant, tax adviser or HMRC directly to understand the tax implications of offering health insurance through your business. This blog is intended only as a guide.
Can businesses deduct health insurance as an expense?
If a business purchases private medical insurance using their company bank account and do not recoup the premiums back from employees), and the policy will exclusively cover employees, then the cost may be deductible as an expense. The premium, or cost of a policy, may be deductible from a company’s profits, which will reduce the amount of corporation tax due. However, employees covered through a workplace health insurance policy may have to pay tax on receiving the benefit, so employers and employees must understand how tax is applied to every member of an organization. Below are some examples that may apply to different individuals when a business purchases private medical insurance.
Business - While the business itself cannot be covered for private medical treatment, it’s responsible for paying the policy cost to cover employees. The business is also responsible for calculating employee benefits annually and will need to complete P11D or P11D(b) detailing the benefits they’ve received and how much they’ve been taxed. Businesses will also need to pay Employer’s National Insurance when covered employees pay tax for receiving the benefit.
Limited company director - Directors of limited companies can be covered under a company-wide health insurance policy, and they’re treated similarly to employees. They’ll be taxed on the cost to cover them as it’s considered a benefit. How much tax they pay depends on their income.
Unincorporated business owner - If you purchase health insurance for employees, you can deduct this cost from company profits. However, if you are purchasing the policy solely for yourself, you may not be able to claim this as a business expense, and you may be personally liable for the payments. If you are able to purchase the policy through your business, then you’ll be taxed on the premiums the company pays.
Employees - If you have access to private medical insurance through a workplace policy, this will be something the business provides and pays for. However, you’ll pay tax based on the premium payments to cover you, as health insurance is considered a benefit in kind. The amount of tax you pay depends on whether you’re a basic, higher or additional earner, and it is your employer's responsibility to calculate this. You’ll be provided with a P11D or P11D(b) at the end of the financial year, including information about your benefits and the tax you pay.
The self-employed - Similarly to a company director, you can be covered under a company-wide policy if it’s paid for by the business and is in no way a personal health insurance policy. You’ll pay tax on receiving this benefit based on the amount of income you receive in the financial year.
How is company private medical insurance taxed?
Private medical insurance is taxed differently for businesses and employees, and the way one employee is taxed may differ from another depending on their tax band. If you purchase health insurance through a business, it is possible the cost, or premium of that policy can be deducted as an expense. Health insurance doesn’t incur VAT in the UK as it has its own set of tax rules called Insurance Premium Tax (IPT). At the time of writing (4th April 2022), the IPT rate is 12%, which means the company will pay an additional 12% on top of their premium payments as tax.
How are employees taxed under a workplace health insurance policy?
Employees who are covered under a company-wide private medical insurance policy may be liable to pay tax. This is because private health insurance through a company is considered a benefit to the employee, and there are unique tax laws around benefits in kind. Employees may pay less National Insurance tax as a result of receiving this benefit, and the amount of tax paid depends on which rate an employee falls into:
Personal allowance - If your total income (including benefits in kind) is £12,570 or less, you will not pay tax on your premium payments.
Basic rate - If your total income (including benefits in kind) is between £12,571 and £50,270, you’ll pay 20% tax on the premium payments.
Higher rate - If your total income (including benefits in kind) is between £50,271 and £150,000, you’ll pay 40% tax on the premium payments.
Additional rate - If your total income (including benefits in kind) is over £150,000, you’ll pay 45% tax on the premium payments.
Employee example: How much tax might you pay?
As an example, if an employee on the basic rate tax code is covered for health insurance under a business policy, and the annual premium cost to cover them is £500, the employee will owe £100 in tax at the end of the financial year. This means that employees are effectively receiving £500 worth of private medical insurance coverage for 20% of the cost compared to if they were to purchase an individual policy.
What are the other benefits of business health insurance?
Aside from the potential tax savings for employers and the reduced cost of accessing private medical insurance for employees, business health insurance can offer many other advantages for people throughout an organisation, such as:
- Offering benefits to employees alongside a salary may help to attract staff and retain those already employed.
- Employees may be more likely to access health services or be more health-conscious, improving their health.
- Private medical insurance may help sick employees return to work faster, reducing the cost of absent staff.
- Businesses can look to reduce the amount of corporation tax they pay while providing a real benefit to their employees.
- Depending on the policy, employee family members may also be covered, extending the benefit beyond the immediate workforce.
- Named policy members may have access to health services otherwise unavailable, such as 24/7 helplines or private GP appointments.
- Private health insurance may provide more flexibility compared to public health services, making health problems easier to manage around work commitments.
Additional coverage, such as mental health, can help to provide a service to your employees that may otherwise be hard to access.
Compare business health insurance policies
If you’re considering purchasing a business health insurance policy, we advise that you compare your options across the market before making any decisions. This process will give you the opportunity to ask questions, help you understand finer details, give you an indication of the price and ultimately allows you to make a more informed decision. We can help you through this process, offering an unbiased comparison service across the most popular UK providers while answering any questions you have. Contact us below and a member of our team will be in touch to help.
