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.
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 for you as an employee 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.
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.
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. It being a business expense for the company while you pay income tax on those premiums as the employee because the policy is a P11D benefit in kind.
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.