I used to have Private Health Insurance through work and I’m now considering buying a personal plan. I previously paid tax on my company Health Insurance — will I also have to with a personal policy?
Taxation of Health Insurance
You’re right in that you would have paid tax on your company Health Insurance scheme. However, as a general rule of thumb, there’s no tax due on a personal policy.
How is Business Health Insurance Taxed?
When a company pays for your Health Insurance, the business usually gets corporation tax relief on the premiums. However, HMRC considers it a taxable P11D benefit in kind.
This means the company must pay Employer’s National Insurance contributions at 13.8% on the premiums. Meanwhile, for the employees it’s a taxable benefit resulting in a larger income tax bill.
HMRC usually adjusts each worker’s tax code by the same amount as the premiums their employer pays for them. This means each employee can earn less before paying income tax.
Do I Pay Tax on Personal Private Medical Insurance?
On the other hand, you buy personal Health Insurance with net earnings. This is income left after HMRC has already deducted the relevant taxes and National Insurance contributions.
As you’ve already paid tax on the income you’re using to pay premiums, the only tax due is Insurance Premium Tax (IPT). However, this is incorporated into the premiums and isn’t something your insurer adds on top.
How Does HMRC Tax Health Insurance Bought Through My Limited Company?
Many of our clients work through their own limited companies. This might be as a contractor, director or freelancer.
As you’re effectively an employee of your limited company, the business can pay for your Private Health Insurance. This is very similar to being in an employed role and having your employer pay for a group scheme.
As such, you’ll be in the same tax position as any employer offering Group Health Insurance. The company pays Employer’s National Insurance Contributions at 13.8% on premiums. Meanwhile, you pay income tax on those premiums as the policy is a P11D benefit in kind.
What’s the Most Tax-Efficient Way to Buy Health Insurance?
The most tax-efficient way of buying Health Insurance depends on your circumstances.
The best course of action is to speak to an independent expert, such as one of the team at Drewberry. Our advisers are trained to not only find you the best policy but also discuss the best way to arrange cover.