The confusion of whether or not private health insurance premiums are deducted from income in the United Kingdom is a common topic. Yes, medical insurance premiums are deductible from your taxable income. There are, nevertheless, certain requirements that must be followed in a tax-efficient way.
As long as a company pays for the private medical insurance of an employee or director, the premiums are deductible as business expenses, and the company benefits from tax breaks on those expenses. Employees and directors who get private medical insurance will be taxed and subject to national insurance (NI) on their premiums.
How does health insurance affect my taxes?
The HM Revenue & Customs (HMRC) applies taxes dependent on the type of plan: a personal policy or group health insurance through your company. You’d have to pay taxes on the health insurance plan provided by your employer. However, personal policies are exempt from taxation as a general rule.
What Is a P11D form?
HMRC issues the P11D form – also referred to as the “P11D expenses and benefits form.” Employers are required to submit a P11D at the close of every tax year for each employee that obtained expenditures or perks on top of their income. This excludes normal business expenditures and advantages such as travelling and corporate car energy.
A P11D is distinct from a P11D (b). A P11D benefit and cost form is for the end-of-year documentation that employers must provide to their employees. The latter is used to record the Class 1A National Insurance payments payable on the employer-supplied costs and perks.
How is private health insurance taxed in the UK?
Private health insurance is often not tax-deductible in the UK since it cannot be classified as a pure company expenditure. Employees may get tax-free medical benefits like the following:
- Yearly health screenings
- Vision check-ups for those having computer desk jobs
- Health care insurance costs for expatriates
Does private health insurance need to be reported to HMRC?
Toward the end of the financial year, each of your workers will be required to complete a P11D form. This lists all of the additional perks they’ve obtained from your company on top of their income, including health insurance, if any.
Is the healthcare coverage subject to insurance premium Tax (IPT)?
Yes. The standard rate of IPT for healthcare coverage is 12 per cent as of June 1, 2017.
Your employment status has an impact
If your health insurance is provided by your company, a percentage of tax will apply to you as related to the cost of your premiums. This is because the health insurance policy is regarded as a “benefit in kind.” In other words, it’s a benefit you receive from your job but not included in your compensation. Conversely, if you don’t have a source of income, you won’t be taxed for having health insurance coverage in place.
Is private health insurance tax deductible for self-employed people in the UK?
Private health insurance is a wise investment for all companies, not just those with many employees. If you’re self-employed and become sick, you’ll have to rely on SSP (statutory sick pay) to make up for lost wages. The urge to return to work quickly increases with private health insurance coverage since it provides rapid access to treatment and assures that you will be back on your feet sooner.
Since health insurance can be considered a business cost for self-employed people who need to return to work as soon as possible after an illness or injury, you may be eligible for tax relief. If this is possible, you should inquire with your insurance company directly.
Some Tax relief may be available
You may be someone who controls the business’s direction or ownership. Since health insurance is a business expense, you’ll be able to deduct the cost of the policy from your taxable income. However, in order to qualify, the firm must pay for the coverage using a business bank account.
Unincorporated businesses (sole traders and partnerships) can deduct the cost of health insurance policy for their employees from their taxable profits. It’s a cost; therefore, you may deduct it from your income tax. Personal health insurance, on the other hand, would be a personal expense. You wouldn’t be able to get a tax break for your own insurance.
Employers must submit a “P11D” form to the HMRC on an annual basis. Here’s the year-end cost and benefit form for workers who made at least £8,500. In addition to the P11D, HMRC requests a P11D(b) form, which specifies the amount of Class 1A National Insurance contributions payable on costs and perks granted to workers over the past financial year. Employees who make more than £8,500 a year must pay tax on the benefits they get.
Claim payouts are not Taxed
Health insurance seldom gives cash benefits to policyholders. In most cases, claims are resolved directly with the healthcare providers, such as hospitals and clinics. However, you will not be taxed if you get money from your health insurance coverage, such as a modest payment in place of staying in an NHS hospital.
Why is private health insurance a good investment for business?
During sickness or after an accident, providing private healthcare to workers assures them that they will have quick access to high-quality treatment, resulting in less time off work, more productivity, and long-term cost savings.
Private health insurance is a very alluring advantage to potential employees throughout the hiring process. There are non-financial incentives in an organisational setting that value wellbeing and work-life balance more than ever. This means that benefits like private health insurance may help you attract and keep the finest employees in your business.