If you are a small business owner, private medical insurance (PMI), alongside business life insurance, can be an attractive additional benefit to offer to your employees. It provides them with reassurance that they will be able to access care quickly when they need it. For your business, it helps your employees to stay healthy and, in the unfortunate event they need treatment for a serious condition, ensures they can return to work as soon as possible. This blog post focuses on the tax implications and will answer the question, ‘Is there VAT on private medical insurance?’.
The key benefit of PMI in the UK is the speed of access to care. As well as avoiding NHS waiting lists for treatment, it can also offer immediate access to GP services and fast referral to diagnostic services such as CT and MRI scans. Policies also offer your employees the ability to choose the hospital or consultant they wish to use and may give access to services that are difficult to access through the NHS, such as mental health therapy.
When buying PMI for employees, your business will typically pay the premiums on their behalf. Therefore, if you are considering offering this benefit, there are several tax implications to consider.
Is there VAT on private medical insurance?
So, is there VAT on private medical insurance? The answer is no because PMI schemes are classified as insurance contracts by HMRC and these usually do not attract VAT.
However, if any non-insurance services are offered along with the PMI scheme, there may be VAT to pay on those. An example of this might be a gym membership. A VAT-registered business purchasing this for their employees would be able to reclaim this as it would on other goods and services.
Is there insurance premium tax on private medical insurance?
PMI premiums do attract insurance premium tax (IPT) at the standard rate. This is currently 12%.
Some types of business insurance are exempt from IPT. These include long term insurance contracts such as business life insurance, or permanent health insurance contracts such as business income protection.
Private medical insurance does not fall under either of these exemptions and so IPT is chargeable. And, unlike VAT, IPT cannot be reclaimed.
Other tax implications for private medical insurance
If a business covers the cost of PMI for its employees, it is treated as a benefit in kind. The business therefore must report it on the HMRC form P11D and also pay Class 1A National Insurance on the value of the benefit, which is the premium paid for the cover. The employee is also taxed on the value of the benefit.
On the positive side, PMI is a business expense and therefore attracts corporation tax relief. And for unincorporated businesses, it can be deducted from taxable profits.
The UK government website gives more information on how businesses need to handle the taxation of private medical insurance.
We can access private medical insurance from a range of providers. Contact us for more information.
Private medical insurance as part of a package of benefits
PMI can form part of a package of benefits for your employees alongside other insurance, such as business life insurance. Other types of insurance that can complement PMI include:
Relevant life cover
Relevant life cover provides a cash benefit to your employee’s family in the event of their death or terminal illness. It’s a form of death in service benefit and is usually more cost-effective for small businesses than a group life insurance scheme.
Executive income protection
Executive income protection pays out a monthly amount if a key employee is unable to work. This is intended to cover the employee’s income, including dividends and benefits, as well as salary.
Like PMI, these other types of insurance contracts can be treated as an allowable business expense, with corporation tax relief available. They also do not attract VAT. However, unlike PMI, they have the benefit of not being treated as a benefit in kind and therefore do not create an additional tax charge for the business or employee. Also, they do not attract IPT.
We offer expertise in business life insurance and executive income protection. Contact us for more information on PMI or these other forms of business insurance.