I own a company and I’m looking to take out group protection policies for my employees. However, I’m not really sure how tax works on employee benefits. Will I need to pay tax on premiums? Do employees need to pay tax on insurance paid for by the company? I think I’ve heard my accountant mention something about P11D benefits, but I don’t know what they are.
When it comes to the taxation of certain employee benefits, it can get a bit confusing in terms on what you do and what you do not pay tax on. If you’re looking to take out any form of Employee Benefits package for your employees then you’ll likely need to know about benefits in kind and the P11D form.
A benefit in kind is effectively a benefit that an employee or director receives from their employer that is not counted as part of their salary. Some examples of benefits in kind include company cars, company mobiles, childcare and accommodation.
While benefits in kind are usually highly valued for both the employee and the employer, there is a slight issue that complicates the matter – how employee benefits are taxed.
Because these benefits are paid for by the company with pre-tax earnings and are given in addition to an employee’s salary, the employee’s salary has effectively been increased without the additional amount being subject to PAYE tax.
So to reclaim the additional tax, HMRC requires employers either to take the owed tax from their employees through their payroll, or declare these expenses at the end of the tax year in order for them to be valued and taxed accordingly.
A P11D form is filled out by an employer to declare to HMRC any benefits given to employees or directors.
When completing their end of year financial reporting, employers need to fill out a P11D form to report the expenses and benefits that they provided for their employees and directors that tax year.
Employees don’t usually need to fill out a P11D form when they receive a taxable benefit. However, if you’re a freelancer or contractor arranging a P11D benefit via your company, you’re technically both employer and employee. In your capacity as the employer, you’ll therefore need to fill out a P11D as part of your self-assessment tax return.
This depends on the employee benefit in question. A brief summary of the tax position on the four most common types of employer-provided group insurance policies are laid out below, but you should seek professional advice on your company’s tax position from your accountant to ensure all is above board.
That means neither employer nor employees usually have to pay additional tax on Group Income Protection premiums, but the benefit will be taxed on a claim via the PAYE system just like wages.
Group Life Insurance – also known as Death in Service cover – is also generally permitted as a business expense for an employer. Employees usually don’t have to pay any tax on Death in Service premiums, either, as Group Life Cover isn’t considered a P11D.
Death in Service is also written into trust in almost all cases, so the benefit goes to the employee’s loved ones tax-free.
Yes, Business Critical Illness cover is generally considered a P11D for employees. Although Group Critical Illness Cover is usually an allowable business expense from HMRC for employers, employees will have to pay tax on the Group Critical Illness premiums you’re paying on their behalf.
Business Private Medical Insurance is another example of a taxable company insurance policy.
The typical way that taxation works for Medical Insurance provided by an employer is that the company will pay for the premiums and the employees will pay tax on the benefit.
This is usually done with an adjustment of their personal allowance, so employers can earn less before they start being taxed.
To learn more about Group Protection products, visit our Employee Benefits page or call us on 02074425880 to speak to one of our experts.
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.