I’ve been looking into providing Critical Illness Cover for my employees, but do I have to pay tax on a Group Critical Illness policy I put in place? I was also wondering about how HMRC taxes Critical Illness Insurance payouts if any of my employees unfortunately need to claim?
When you purchase a Company Critical Illness policy, it’s taxed slightly differently from the Critical Illness Cover you’d take out as an individual. When you buy Critical Illness Cover for yourself, you pay for it using income you’ve already paid tax and National Insurance on (i.e. your wages).
However, when an employer takes out this cover on behalf of its employees, Group Critical Illness Insurance is usually considered a business expense you can reclaim against corporation tax.
As well as the premiums being tax-deductible for your company, there’s no income tax on Critical Illness Insurance payouts for your employees, either.
It’s important to consider that, for your employees, generally Group Critical Illness Cover is a taxable benefit in kind (p11d benefit). This means they’ll have to pay tax on the premiums you’re paying on their behalf.
This is done via HMRC. HMRC will alter each employees’ tax codes to decrease their personal allowance – the amount they can earn before paying income tax – by a sum equivalent to the value of the Critical Illness Insurance premium you’re paying for them.
I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.