If you’re a business owner considering health insurance for your employees, this is your essential guide to how the medical cover you provide will affect your tax situation.
In this post we’ll also explore how medical insurance affects tax for self-employed people, and other unincorporated business owners.
How Does Medical Insurance Affect Tax?
At the end of your financial year, you’ll need to complete a P11D form for each of your employees. This is the “expenses and benefits form”, and you use it to list all of the benefits your employees receive on top of their salaries. If you provide private health insurance, you’ll have to include it on this form.
Is Private Health Insurance a Benefit in Kind?
HMRC considers private health insurance to be a benefit in kind. This means that, most of the time, medical insurance is not tax deductible. Employees will have to pay tax on any insurance premiums you list on the P11D form.
When is Private Medical Insurance Tax Deductible?
Only business expenses are tax deductible. In the vast majority of cases, private health insurance is not wholly a business expense, and as such, it’s not tax deductible.
Yet some employee health benefits are exempt from tax:
- Annual health check-ups.
- Eye tests for employees who work at screens.
- Medical insurance for employees working abroad.
Is Medical Insurance Tax Deductible for Self-Employed People in the UK?
If you’re running an unincorporated business – for example, if you’re a sole trader or in a partnership – you can deduct the cost of health insurance from your taxable profits. For self-employed workers, private health insurance might qualify as a valid business expense. If you cannot work due to illness or injury, then you’ll miss out on a lot of income.
Health insurance can help you get back to work quicker, as it can give you faster access to the treatment you need. So you might argue that it’s too risky to work without a health insurance plan in place. And if this is the case, your medical insurance might well be tax deductible. Talk to your insurer to find out if you’ll be eligible for this exception.
But you can only do this if your business is paying for the health cover. You cannot get a tax break for a personal health insurance policy, as that counts as a personal expense. A good way to ensure that you qualify is to pay for your cover from a business bank account.
Private Health Insurance an an Employee Benefit
Private health insurance is one of the best employee benefits. It can help businesses attract and retain top talent. And as it demonstrates that you care about your employees’ wellbeing, it can be great for morale. Plus, if employees have fast access to the treatment they need, you’ll likely lose fewer days to unplanned absence.
So all limited company directors should consider providing their employees with health insurance. And as we explored above, it’s also a great idea for sole traders, freelancers and contractors to get medical insurance.
To find out more about how health insurance can benefit you and your business, take a look at our guides:
- The advantages of private health insurance for small businesses.
- Self-employed: How to get insurance for sickness, illness or injury.
If you have any questions or would like to discuss your options please contact our Tapoly team at firstname.lastname@example.org, call our helpline on +44(0)2078 460 108 or try our chat on our website.