How is Group Critical Illness Insurance Taxed?

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?

Question asked by Mr J Hughes
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Answered by Michael Englefield

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).

How is Business Critical Illness Cover taxed?

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.

How much tax will I pay on Group Critical Illness Insurance?

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.

Is Group Critical Illness Insurance a benefit in kind?

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.

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This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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