If your company offers private medical insurance (PMI) as a workplace benefit—or you’re an employee who receives it—it’s important to understand how it’s taxed.
While PMI is a valued perk that can support employee wellbeing and reduce sickness absence, it also comes with tax responsibilities. Both employers and employees may be affected, and understanding these implications can help you budget properly, stay compliant, and avoid unexpected tax charges.
In this guide, we’ll walk through the key points—covering what PMI is, how it’s taxed, how to report it, and what it means in practical terms.
What is company-paid private medical insurance?
Company-paid PMI is a health insurance policy funded by an employer that gives individuals faster access to private healthcare services. When a company arranges and pays for this cover for its employees, either fully or partially, it becomes a company-paid benefit.
In most cases, the employer covers the entire premium, but some companies offer PMI as part of a flexible benefits package, where the employee may also contribute. Regardless of how it’s structured, if the company is paying towards the policy and the cover provides a personal benefit to the employee, it’s classified by HMRC as a benefit-in-kind.
That means it’s subject to tax—both from the employer’s side and the employee’s.
Employer tax responsibilities
If you’re a business offering PMI to your team, there are a few key areas you’ll need to be aware of from a tax and reporting point of view.
Insurance Premium Tax (IPT)
Private medical insurance is subject to Insurance Premium Tax, the standard rate for this is currently set at 12%. This tax is applied by the insurer and forms part of the total cost of the premium.
You cannot reclaim IPT in the same way you might reclaim VAT. It’s effectively a cost of offering the benefit, and one you should factor into your overall budget for employee healthcare.
Class 1A National Insurance Contributions
As PMI is a taxable benefit, employers must also pay Class 1A National Insurance Contributions (NICs). This is currently 13.8% of the annual value of the benefit provided.
The NICs apply even though the policy is not part of the employee’s salary. The amount is calculated at the end of each tax year and paid separately to HMRC.
Corporation tax relief
There is financial relief available. The cost of providing private medical insurance is usually classed as an allowable business expense, which means you can deduct it when calculating your company’s taxable profits.
So while there’s no direct tax credit or rebate for offering PMI, you can reduce your overall corporation tax bill by treating the premium payments as business costs.
No VAT on PMI
Unlike many goods and services, private medical insurance is VAT-exempt. This means you do not pay the standard 20% VAT on top of your premiums.
However, keep in mind that IPT (Insurance Premium Tax) still applies and is charged within the total premium by your insurer.
Reporting via P11D and P11D(b)
If you provide PMI to employees, you are required to report it as a benefit-in-kind by completing a P11D form for each relevant employee. This must outline the value of the benefit provided.
You must also complete a P11D(b) to declare and pay the Class 1A NICs owed. Missing or incorrect submissions can lead to penalties or interest charges, so it’s essential to ensure all reporting is accurate and submitted on time.
What employees need to know
Receiving PMI through your employer can be a great benefit—it gives you quicker access to treatment, choice of specialists, and often peace of mind. But it does come with some tax implications.
Although you’re not receiving money in hand, HMRC treats the benefit as though you were. It’s added to your taxable income and taxed accordingly.
How it works
- The value of the PMI is added to your total taxable income.
- You’ll pay income tax on it at your usual rate (e.g. 20%, 40%, or 45% depending on your tax band).
- The tax is not deducted from your salary directly. Instead, your tax code is adjusted so that the additional tax is collected via PAYE.
Example
Let’s say your employer pays £1,200 per year for your private medical insurance:
- If you are a basic rate taxpayer (20%), you would pay £240 in tax on that benefit.
- If you are a higher rate taxpayer (40%), the tax would be £480.
The tax isn’t deducted from salary directly. Instead, HMRC adjusts the employee’s tax code to collect the additional tax via PAYE.
Your employer will report this benefit on your P11D, and you will typically receive a revised tax code the following year to reflect the adjustment. It’s important to check your tax code and ensure it correctly reflects any benefits-in-kind you’re receiving.
What if you buy health insurance personally?
If you take out a health insurance policy in your own name, and your employer isn’t involved in arranging or paying for it, things are a little different.
- You still pay Insurance Premium Tax, as it’s included in your premium.
- You pay for the policy using post-tax income (i.e. after you’ve paid your usual income tax).
- The policy is not considered a benefit-in-kind, and therefore, you don’t pay additional income tax on it.
- There is no tax relief available for private health insurance premiums.
So while personal PMI won’t attract any tax penalties, it doesn’t provide any tax advantages either.
Can you use salary sacrifice for PMI?
This is a common question—and the short answer is: not really.
While it is technically possible to fund PMI through a salary sacrifice arrangement, doing so does not reduce your tax or National Insurance bill.
That’s because HMRC still considers PMI to be a benefit-in-kind. Even if you give up a portion of your salary to pay for it, it will still be taxed in the same way. You’ll still pay income tax on the value, and your employer will still need to report it.
This is different from other salary sacrifice schemes—such as those for pensions, cycle-to-work programmes, or childcare vouchers—which do offer tax savings and National Insurance relief.
Things to be watch out for
1. Missing P11D’s
Failing to report PMI correctly can lead to penalties. It’s essential that employers capture all employees receiving the benefit and report the full value.
2. Budgeting errors
It’s easy to overlook the full cost of providing PMI. When calculating the total cost, businesses should factor in:
- The premium amount including IPT
- The Class 1A NICs
- Any administrative or broker fees
3. Employee confusion
Many employees are unaware that PMI is taxable until their tax code changes. To prevent confusion or frustration, it’s best to explain this clearly—either when the benefit is first introduced or during annual renewals.
Final thoughts
Private medical insurance is one of the most sought-after workplace perks in the UK. It offers tangible benefits to staff and signals a commitment to wellbeing. However, it isn’t tax-free, and that’s important for both employers and employees to understand.
If you’re offering PMI as an employer, make sure you:
- Understand the cost implications of IPT and NICs
- File the correct forms with HMRC on time
- Communicate clearly with your employees
If you’re an employee receiving PMI, remember that it will affect your tax code. But for many, the ability to access faster, private treatment makes the benefit worthwhile—even with the small tax cost.
Need help?
If you’re unsure how to report PMI or you want to explore more cost-effective ways of offering health benefits to your team, it’s worth speaking with a regulated insurance broker (like us!) or a qualified accountant. They can guide you through your options and help ensure you’re staying compliant with HMRC rules.
Frequently Asked Questions
What is Insurance Premium Tax (IPT)?
Insurance Premium Tax (IPT) is a government tax applied to most general insurance policies in the UK, including private medical insurance (PMI). It’s charged by the insurer and included in the total cost of the premium—so while the insurer pays it to HMRC, the cost is ultimately passed on to the policyholder.
As of 2025, the standard rate of IPT is 12%, and this applies to PMI, vehicle insurance, home insurance, and other general insurance products. There’s also a higher rate of 20%, which applies to certain types of insurance sold alongside goods or services (like travel insurance sold with a holiday).
IPT does not apply to all insurance products. Exemptions from IPT include Life insurance, long-term care insurance, and most types of reinsurance.
Is IPT the same as VAT?
No. Insurance is generally exempt from VAT, but IPT is charged instead. You can’t reclaim IPT the way a business might reclaim VAT on goods or services. It’s simply a cost to be factored into the price of the policy.
Do all insurers charge IPT the same way?
Yes. IPT is a statutory tax set by the UK government. Every insurer must apply it to eligible policies, and the rate is consistent across the board.
Are company directors taxed differently?
No. Directors are treated the same as employees for the purposes of benefit-in-kind taxation, including for PMI.
Can family members be added to a company health insurance policy?
Often, yes. Many insurers allow dependants such as a spouse or children to be added. However, if the employer pays for their cover, that value is added to the employee’s overall benefit-in-kind and taxed accordingly.
Does this guidance apply to trust-based schemes?
No. This guide refers specifically to insured PMI policies. Trust-based healthcare schemes—typically used by larger employers—are set up and managed differently and have their own tax rules.
Disclaimers:
Disclaimer 1: Tax rules are correct as of June 2025 and may be subject to change. Always refer to official HMRC guidance or seek advice from a professional.
Disclaimer 2: This article provides general information and should not be relied on as tax, legal, or financial advice. Speak to a qualified adviser for help with your individual circumstances.
