How is Group Critical Illness Insurance Taxed?

I’ve been looking at getting Critical Illness Cover for my employees. However, I was wondering if I need to pay tax on a Group Critical Illness policy? I’d also like to know how HMRC taxes Critical Illness Insurance payouts if any of my employees unfortunately need to claim?

Question asked by Mr J Hughes

How Does HMRC Tax Business Critical Illness Cover?

When an employer takes out Group Critical Illness Insurance for its employees, HMRC usually considers it a business expense you can reclaim against corporation tax.

Is Group Critical Illness Insurance a Benefit in Kind?

However, for your employees, Group Critical Illness Cover is generally a taxable benefit in kind (P11D benefit). This means they’ll therefore have to pay tax on the premiums you’re paying on their behalf.

HMRC alters each employee’s tax code to cut their personal allowance (the amount they can earn before paying income tax). This reduction will be equivalent to the value of the annual Critical Illness Insurance premium the business is paying for them.

Do You Pay Tax on Group Critical Illness Payouts?

No, there’s usually no income tax on Critical Illness Insurance payouts for your employees. Employees receive their payout as a tax-free lump sum if they unfortunately have to make a claim.

I had a great experience with Drewberry, they have a lot of knowledge and expertise with life insurance and income protection and were able to advise me and arrange suitable products. Highly recommend.

Lachlan Mellings
12/08/2020
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