Private Medical Insurance – Tax Facts

Private Medical Insurance accounts for 21% of the value of all benefits in kind and 60% of employees with benefits have Private Medical Insurance, based on HMRC statistics.

HMRC have an A to Z list of benefits and expenses which gives guidance on most benefits and Helpsheet 207 which provides details of non-taxable benefits.

But did you know some medical benefits are tax free:

1. Periodic medical check-ups or health screenings (maximum of one per tax year)
2. Eye tests required under health and safety legislation and the cost of corrective glasses or contact lenses
3. Medical treatment provided outside the UK when the employee is working overeseas
4. Medical treatment or insurance solely related to injuries or diseases arising from the employee’s work
5. Welfare Counselling

If you do have Private Medical Insurance provided by your employer it will be reported on the P11D in Section I (if you are not a Director or earn below £8,500 (P9D employees) Private Medical Insurance is not taxable).

Simply Health have produced a Fact Sheet which sets out the tax implications of:

• Private Medical Insurance (PMI)
• Health Cash Plan
• Cost Plus Insurance Plan
• Healthcare Trust
• Scheme Agreement

The Fact Sheet shows the tax for both basic and higher rate taxpayers and the Employers NI.

The Money Advice Service sets out some of the Pros and Cons of PMI:

Pros

• Specialist referrals. You can ask your GP to refer you to an expert or specialist working privately to get a second opinion or specialist treatment.
• Get the scans you want. If the NHS delays a scan, or won’t let you have one, you can use your cover to pay for it.
• Reduce the waiting time. You can use your insurance to reduce the time you spend waiting for NHS treatment, if your wait time is more than six weeks.
• Choose your surgeon and hospital. You can (in theory) choose a surgeon and hospital to suit your time and place – which isn’t possible on the NHS.
• Get a private room. You can use it to get a private room, rather than staying in an open ward which might be mixed-sex.
• Specialist drugs and treatments may be available. Some specialist drugs and treatments aren’t available on the NHS because they’re too expensive or not approved by the National Institute for Health and Clinical Excellence in England and Wales (NICE) or the Scottish Medicines Consortium (SMC).
• Physiotherapy. You get quicker access to physiotherapy sessions if you have insurance than you would through NHS treatment.

Cons

• You might get better care on the NHS. If you have a serious illness such as cancer, heart disease or stroke, you’ll get priority NHS treatment. NHS hospitals can be as good as or better than private hospitals.
• It’s expensive – and the price will go up. A typical family premium (two adults in their 40s and two children under 10) can vary from £700 to £1,650 per year. Premiums will rise every year, and with age – so by the time you’re older, and more likely to need hospital treatment, you may not be able to afford it.
• Chronic illnesses aren’t usually covered. Most policies don’t cover chronic illnesses which are incurable, such as diabetes and some cancers.
• There may not be any local treatment options. If you choose a policy with an approved list of consultants and hospitals this may not include the expert consultant you want to see or a convenient location for treatment.

As an alternative to PMI, I think it might be worth looking at Insurance Policies that are tax free such as Income Protection, the following is an example from Willis Insurance:

Group Income Protection pays a proportion of employee’s salary if they are off work due to accident or illness for a prolonged period.

Group Income Protection can be set up with a deferred period of 13, 26, 28, 41, 52 and 104 weeks. The longer the deferred period the lower the premium will be.   Typically the cost of providing Group Income Protection is usually between 0.5% -1.5% of payroll but largely depends on the type of business.

The premiums for the policy enjoy tax relief on contributions and no Benefit In Kind Tax

Employers could then support employees by paying for specific health care as necessary, the employees would then only be taxed on the care that they required.

steve@bicknells.net