How does group health insurance work?
A group health insurance policy allows a business to take out health insurance for its employees as a group. This means that any employee covered by the policy can access private healthcare instead of waiting for treatment via the NHS.
The premiums are typically cheaper than the ones you'd pay for an individual health insurance policy. Some insurers provide medical insurance for businesses with as few as two employees. There are also different levels of coverage for different types of companies to reflect their differing needs; a large corporation will need different benefits and services from a small business.
Tax implications for businesses
Providing private health insurance will help you support your workforce and bring your business some tax benefits too.
You can claim tax relief on health insurance premiums as its an allowable expense for corporation tax purposes. This can allow you to reduce your overall corporation tax bill.
Insurance Premium Tax
Insurance Premium Tax (or IPT) is payable on general insurance premiums; the standard rate is 12%. Your insurance provider should be registered for IPT and include the tax in your premium. However, you may see it referred to as part of your quote.
National Insurance contributions
Group health insurance premiums will affect the National insurance contributions you pay on employee earnings, as health insurance is treated as a benefit in kind. How this is paid will vary depending on how the premiums are paid.
Employer pays the premiums to the insurer directly
You'll pay Class 1A National insurance contributions based on the value of the benefit, which is the same as the cost of the premium.
The employee arranges the insurance, and the employer pays the premium
You'll add the value of the benefit to the employee's earnings when they go through payroll and pay Class 1 National Insurance.
The employee pays the premium and claims it back
This is treated in the same way as earnings, so you'll add it to the employee's other earnings and put it through payroll.
Tax implications for employees
The main tax implications of private health insurance for employees relate to income tax. Your employer must pay additional National Insurance on premiums, but an employee doesn't.
How private health insurance is taxed depends on who pays the premiums; the employer or the employees.
When an employer pays the premiums
If your employer pays for your health insurance, you'll be taxed on the value of the benefit. This is the same as the cost of the premium. If you pay the premium and your employer pays you back, this will be included on your pay slip as earnings and taxed along with the rest of your salary.
When an employee pays the premiums
If your employer has set up a group health insurance policy, they can ask you to pay the premiums yourself if you want to be included. If you pay for cover yourself, you won't have any additional tax to pay.
This doesn't apply if your employer has set up a salary sacrifice scheme, where your premiums are deducted from your pay before tax. Your employer will report the scheme to HMRC, and they'll ask you to pay tax on it at the end of the tax year.
An employer can provide employees with some types of healthcare and testing without paying additional tax. This mainly applies where health checks allow them to ensure that your work isn't causing any health issues.
Medical checks and screening
You can have one check-up a year tax-free.
These are exempt for employees who work using a computer monitor or screen.
Glasses and contact lenses
You can provide your employees with glasses or contact lenses tax-free as long as they're needed for display screen work.
Treatment outside the UK
You can pay for the treatment your employee needs whilst working overseas. This only applies if you either arrange your employee's treatment or insurance for them and pay the provider direct or if you've agreed to pay in advance.
Insurance or treatment for work-related reasons
These are tax-exempt if you only pay for treatment or offer insurance for health conditions directly related to an employee's work. It means that any health insurance can't be used to treat other medical conditions.
Treatment to help an employee return to work
Occupational health can support an employee's return to work by arranging medical treatment. If an employee has been absent for over 28 consecutive days, or a health professional has assessed them and confirmed that they would be absent for at least 28 days, you can offer up to £500 worth of treatment tax-free to aid their recovery.
Reporting to HMRC
When you provide private medical insurance to your employees or pay for private treatment, you need to report this to HMRC so that you and your employee can pay tax and National Insurance as appropriate.
If you've arranged the private health insurance or treatment direct and paid the premiums, or if your employee has made their own arrangements and you've paid the provider direct, you need to report the amount paid to HMRC using form P11D.
If your employees pay for their insurance or private healthcare and you've reimbursed them, this is treated as earnings. You'll need to add the costs to their payslip along with their other earnings. The same rules apply if you've paid your employees a cash allowance or increased salary to pay for private medical insurance or healthcare costs.
Getting professional advice
If you've decided to provide your employees with private medical insurance and want to consider the likely costs and tax implications, contact us for a comparison quote.
Frequently asked questions
Can I claim corporation tax relief on group health insurance premiums?
Yes. Health insurance premiums are an allowable expense for corporation tax purposes. This can allow you to reduce your overall corporation tax bill. The premiums count as a business expense for health insurance provided to employees and company directors.
This applies whether you have a limited company or an unincorporated business. However, it's essential to pay the premiums from a business bank account to ensure it's treated as an allowable business expense.
Will my business need to pay any additional tax due to providing health insurance?
Providing health insurance to your employees means that you'll need to pay increased National Insurance contributions. If you pay the insurance provider directly, you'll pay Class 1A contributions on the cost of the premiums. If your employee arranges their own insurance, but you pay the premiums direct, you'll need to pay Class 1 contributions. Where an employee makes their own arrangements and claims the cost from you, this is treated as additional earnings, so any additional National Insurance due will be dealt with via payroll.
Will my employees have to pay any additional tax on their health insurance?
Private health insurance is treated as a benefit in kind by HMRC. If your employees were to arrange their private medical insurance, they'd already have paid tax on the income they used to pay the premiums. Health insurance gives your employees a personal benefit, so HMRC takes steps to ensure that they pay tax on the value of the benefit.
At the end of each tax year, you'll need to complete form P11D stating the value of the premiums you've paid on behalf of each employee. HMRC will then calculate how much additional income tax the employee needs to pay.
Are there any types of treatment that are exempt from additional taxes?
Yes. Some medical checks and treatments are required as part of an employer's duty of care to their employees. These treatments are tax-exempt:
- Checkups and medical screening tests - you can claim one per year tax-free.
- Annual eye tests for employees working with computer monitors or other screens.
- Glasses and contact lenses that are needed for an employee's work with display screens.
- Treatment outside the UK for employees who are working overseas.
- Any private medical insurance or treatment given purely for work-related illness and injury.
- Treatment costing up to £500 that helps an employee return to work when they've been absent (or will be absent) for at least 28 consecutive days.
How does my business need to report the health insurance spend to HMRC?
You'll need to report the value of the benefit to HMRC using form P11D. The figure you need to report is the same as the amount you pay for the premiums.