What is Private Healthcare?
Private healthcare in the UK includes services outside the NHS, such as private health insurance, direct payments for treatments, and corporate healthcare schemes.
Private Health Insurance
Private health insurance covers part or all of your private medical treatment costs. Policies can cover a range of treatments, from outpatient care to major surgeries. Benefits include shorter waiting times, access to private hospitals and specialists, and a more comfortable patient experience. However, the coverage and cost of policies vary widely, so it’s essential to choose one that meets your specific needs.
Direct Payment for Treatments
Some people prefer to pay for private medical treatments as they need them, which can be cost-effective if you don’t need much medical care. This option allows you to control costs and avoid regular insurance premiums. Direct payments can be made for various services, including consultations, surgeries, and diagnostic tests. While this approach provides flexibility, it can be expensive if you require extensive medical treatment.
Corporate Healthcare Schemes
Businesses often offer private healthcare as part of their employee benefits package. This might include health insurance, dental plans, and wellness programs. These schemes aim to improve employee health and well-being, reduce absenteeism, and enhance productivity. Offering such benefits can also make your company more attractive to potential employees, providing a competitive edge in recruitment.
Providing Private Healthcare To Employees As A Limited Company Owner
If you own a limited company and provide private healthcare, there are several tax implications to consider.
When your company provides private healthcare, including to directors, it’s considered a benefit in kind (BIK). This means it’s subject to tax and National Insurance contributions (NICs).
Income Tax and National Insurance
Income Tax
The value of the healthcare benefit is added to the employee’s income and taxed at their usual rate.
Employer’s National Insurance
Your company has to pay Class 1A NICs at 13.8% on the value of the benefit.
Reporting to HMRC
You need to report these benefits to HMRC using the P11D form and pay the Class 1A NICs. Accurate reporting is crucial to avoid penalties. The P11D form should include details of all benefits provided, their value, and the employees receiving them. Keeping thorough records and staying organised will help ensure compliance and prevent issues during HMRC inspections.
Tax Deductibility
While the healthcare benefit is taxable for employees, it’s also a deductible business expense for your company. This means you can reduce your Corporation Tax by the cost of providing these benefits.
Practical Example:
If a company pays £1,000 per year per employee for private healthcare:
- Corporation Tax: The £1,000 is deducted from the company’s profits, reducing the Corporation Tax payable.
- Class 1A NICs: The company pays 13.8% of £1,000, which is £138.
- Employee Tax: If the employee is a basic rate taxpayer (20%), they pay £200 (20% of £1,000) in income tax.
Summary:
- Company: Deducts the cost from profits for Corporation Tax purposes, but pays Class 1A NICs.
- Employee: Pays income tax on the benefit but no National Insurance.
Tax Implications for the Self-Employed
The self-employed face different rules regarding private healthcare and taxes.
Private Health Insurance
For the self-employed, health insurance premiums are generally not deductible as a business expense. HMRC sees these as personal expenses, even if they relate to business-related health issues. This means that you will need to pay for these premiums out of your post-tax income, which can be a significant cost, especially for comprehensive policies.
Direct Payments for Treatments
Direct payments for private medical treatments aren’t deductible as business expenses either. These costs must come out of your post-tax income. This can be particularly burdensome if you require frequent or expensive treatments. However, paying directly allows you to manage your healthcare expenses based on immediate needs and avoid ongoing insurance premiums.
Limited Exceptions
In rare cases, if a medical expense is solely for business purposes, it might be deductible. For example, if you need a medical check for your business (like a fitness test for a pilot), it might be allowable. These exceptions are few and far between, and claiming them requires careful documentation and a clear demonstration that the expense is exclusively for business purposes.
Tax-Efficient Strategies For Businesses Wanting To Provide Private Healthcare to Employees
Salary Sacrifice Schemes
Consider implementing salary sacrifice schemes, where employees agree to a reduced salary in exchange for benefits like private healthcare. This can save on tax and NICs for both you and your employees. By reducing their taxable income, employees may also drop into a lower tax bracket, resulting in further tax savings. For the company, this can lower NICs and potentially reduce overall payroll costs.
Company-Funded Health Assessments
Annual health assessments provided by your company are tax-exempt up to £500 per employee. This includes health screenings and medical check-ups, offering a tax-efficient way to provide healthcare benefits. These assessments can help identify health issues early, improving employee well-being and potentially reducing long-term healthcare costs for the company.
Employee Benefit Trusts (EBTs)
EBTs can offer healthcare benefits in a tax-efficient way. Contributions to EBTs are deductible for Corporation Tax, and the trust can fund healthcare benefits for employees. Setting up an EBT requires careful planning and administration, but it can be a valuable tool for providing benefits while managing tax liabilities effectively. Consult with a tax professional to ensure compliance and maximise the benefits of an EBT.
Health Cash Plans
Health cash plans are another way to offer tax-efficient healthcare benefits. These plans reimburse employees for everyday healthcare costs, such as dental check-ups, optical care, and physiotherapy. Premiums for health cash plans are generally lower than those for comprehensive health insurance, making them an affordable option for businesses looking to support employee health without significant tax burdens.
Compliance and Best Practices
Keep Accurate Records
Maintaining accurate records of all healthcare benefits and their costs is crucial. This includes invoices, contracts, and payment proofs. Detailed records will help you provide accurate information to HMRC and support your claims for tax deductions. Use accounting software to track expenses and generate reports that summarise your healthcare benefits and their tax implications.
Regularly Review Benefits
Regularly review the benefits you offer and their tax implications to ensure compliance and optimise tax efficiency. Consulting with a tax advisor or accountant can be very helpful. They can help you stay updated on changes in tax laws and regulations, identify potential savings, and ensure that your benefits packages remain competitive and compliant.
Stay Updated with HMRC Regulations
Tax regulations change frequently. Staying informed about the latest updates and seeking professional advice can help you avoid pitfalls and take advantage of available tax reliefs. Subscribe to HMRC newsletters, attend tax seminars, and engage with professional networks to stay informed about new rules and best practices.
Engage Employees in Benefits Decisions
Involve your employees in discussions about healthcare benefits to ensure that the options you provide meet their needs and preferences. Conduct surveys or focus groups to gather feedback and make informed decisions about the benefits packages. This engagement can increase employee satisfaction and help you design benefits that offer the best value for both your employees and your business.
Consider Flexible Benefits Packages
Offering flexible benefits packages allows employees to choose the healthcare options that best meet their needs. This approach can enhance employee satisfaction and ensure that your benefits budget is used effectively. Flexible benefits packages can include a mix of health insurance, wellness programs, and direct payment options, giving employees the freedom to tailor their benefits to their personal circumstances.
Conclusion
Understanding the tax implications of private healthcare in the UK is essential for company owners and the self-employed. While providing or receiving private healthcare has tax considerations, careful planning and informed decisions can lead to significant benefits. By staying compliant and leveraging available tax reliefs, you can optimise your tax position and ensure the well-being of yourself and your employees.
For more tailored advice, consulting with a tax professional or accountant is highly recommended. They can provide specific guidance based on your circumstances and help you navigate the complexities of private healthcare and tax in the UK. Ensuring that you are compliant with HMRC regulations and taking advantage of available tax reliefs will help you maximise the benefits of private healthcare for your business and personal health.
How CRM Can Help
At CRM Accountants, we offer expert support to simplify the complexities of tax planning and employee benefits.
Get in touch by completing our contact form or give us a call at 01865 379272. We’re here to simplify your financial journey.
