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.

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Tax implications for businesses

Providing private health insurance will help you support your workforce and bring your business some tax benefits too.

Corporation tax

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.

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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.

Income tax

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.

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Tax-exempt treatment

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.

Eye tests

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.

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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.

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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.

Kingsley Agbo
Senior Broker

Kingsley Agbo

Kingsley has over a decade's experience in health, group life insurance and relevant life insurance. He's a talented broker with a passion for his work and for supporting his clients.

Frequently asked questions