P11D – Is Health Insurance Tax Deductable?

George Blandford

July 6, 2024

Let’s first establish what a P11D is, and how to calculate tax on benefits recieved.

P11D is a document used in the UK to report benefits in kind (BIK) provided to employees and Directors.
⦁ These benefits are non-cash perks that are received but not included in their salary.

Common Benefits

⦁ Private medical insurance
⦁ Company cars
⦁ Interest free loans
⦁ Subsidized or free travel
⦁ Entertainment expenses
⦁ Assets provided to an employee that have significant personal use

Employers Responsibility

⦁ Collect Information: Gather details of all benefits and expenses provided to employees during the tax year.
⦁ Calculate the Value: Determine the taxable value of each benefit. This usually involves calculating the cash equivalent of the benefit
⦁ Submit the P11D: Fill out and submit a separate P11D form for each employee who received benefits.

Employees Responsibility

⦁ Check the Information: Employees should check the information on their P11D to ensure it is accurate.
⦁ Pay Tax: Pay any additional tax due on the benefits through their tax code adjustment or via a self-assessment if they are required to file a tax return

Example benefit – PMI

⦁ The cost of this is £1200pa
⦁ Your employer reports this £1,200 on your P11D form
⦁ HMRC uses this information to adjust your tax code, meaning they may take a bit more tax from your salary to cover this extra benefit

So Employees do get taxed on recieving company health insurance, however the cost to them is significantly lower than if they paid for the policy privately. You also likely benefit from some economies of scale from group cover, you may also get better underwriting terms. Reason for Insurers looking for fondly towards group scheme underwriting comes down to how they assess the performance of a scheme – Loss ratio. With individual cover, the risk is pretty high to the insurer – even a single claim in any given policy year could cost them more than the premium collected. Individual cover as a result is normally calculated based on NCD – no claims discount. For company health insurance it’s usually based on total cost of claims vs premium paid (loss ratio).
How much would the employee pay towards your health insurance?

⦁ Taking the example before of £1,200pa BIK for PMI. If you earn less than £37,700, you would pay 20% of £1,200 in tax (£240).
⦁ If you earn between £37,700 and £125,140, you would pay 40% (£480)
⦁ If you earn in excess of £125,140, you’ll pay 45% (£540)

How much would the Employer Pay?

⦁ The employer would have to pay the Class 1A NIC Rate (currently 13.8%) which would be £165.60 in this example.
⦁ So, how on earth are Insurers selling any businesses PMI if it costs them £165.60 for every £1,200 they are already paying for the benefit I hear you scream?
⦁ Thankfully, PMI is a tax deductible expense from the company corporation tax. For companies with profits exceeding £250,000, this will be 25% deduction. So, they benefit from £300 tax relief and pay £165.60 in NIC. Total saving of £134.40 on £1,200 benefit.

Class 1a National Insurance

⦁ Employers also have to pay an extra tax (called class 1A NI) on most of these benefits.
⦁ They calculate this tax based on the value of the benefits and report it using another form called the P11D(b).

Summary

⦁ P11D Form: Tells HMRC about extra benefits you get from your job
⦁ Why it Matters: Ensures you pay the right amount of tax on these benefits.
⦁ What You Do: Check the form your employer gives you and make sure it’s correct.
⦁ Employees pay a benefit in kind tax on recieving Health Insurance, but the contributions is significantly less than the cost of private cover.
⦁ Employers do pay contributions through National Insurance, and the cost of the policy – however some of these costs are deductable against corporation tax.

FAQs

Is Health Insurance Tax Deductable for the Self-Employed?

If you’re the director of a limited company or a sole trader, you can claim the insurance as a tax-deductible expense. To do this, make sure you buy a business health insurance policy, not a personal health insurance policy.

Is Private Health Insurance Tax Deductable for an Individual?

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.

What Taxes Will I Likely Pay on PMI?

Employees and directors who get private medical insurance will be taxed and subject to national insurance (NI) on their premiums. All health insurance policies also contain IPT (Insurance Premium Tax) which is currently 12%

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