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Partially Claimable

Can I Claim Private Health Insurance as a Business Expense?

The company can pay for it (tax deductible for the company), but you'll pay tax on it as a Benefit in Kind.

Typical claim: £500-2,000/year premium. BIK tax: 20-45% of premium value

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What HMRC Says

Private medical insurance is a taxable Benefit in Kind. The company gets Corporation Tax relief, but the employee/director pays income tax on the premium value.

When You Can Claim

  • Company pays premiums (deductible against CT)
  • Group scheme for all employees

When You Cannot Claim

  • Tax-free personal health insurance doesn't exist

Understanding Private Health Insurance Expenses

Private health insurance (PMI) is one of the most popular employee benefits provided through limited companies, and with good reason: while it is a taxable Benefit in Kind, the overall tax position is still more favourable than buying cover personally. Understanding the mechanics helps you make the right decision.

When your company pays for private health insurance, the premium is a tax-deductible business expense, reducing your Corporation Tax liability. The company pays the premium directly to the insurer (Bupa, AXA, Vitality, Aviva, etc.), and the cost reduces company profits. At a 25% CT rate, a £1,200 annual premium effectively costs the company £900 after CT relief.

The director or employee receives the insurance as a Benefit in Kind, which is reported on form P11D. You pay income tax on the premium value at your marginal rate. A 40% higher-rate taxpayer pays £480 tax on a £1,200 policy. The company also pays Class 1A National Insurance at 13.8% on the benefit, adding £165.60. So the total tax cost is £645.60 on a £1,200 premium.

Compare this with buying the same cover personally. To have £1,200 after tax as a 40% taxpayer, you need to earn £2,000 gross from the company (plus employer NI). Taking it as a company benefit saves a significant amount overall. This is why PMI through the company is attractive despite the BIK charge.

For family cover, the BIK applies to the full premium including family members. A family policy costing £3,000 per year means a BIK of £3,000 on the director. At 40%, that is £1,200 in additional income tax. Some directors opt for individual cover through the company and family cover personally, depending on the relative costs and tax rates.

Group schemes with multiple employees can secure better rates than individual policies. Insurers typically offer better premiums for groups of 3 or more, and group policies do not require individual medical underwriting. If your company has employees, offering PMI as part of their package is a genuine recruitment advantage, and the premiums for all employees are deductible against CT.

One important nuance: employer-provided medical treatment (not insurance) for returning employees to work is exempt from BIK up to £500 per year under ITEPA 2003, s323A. This covers things like physiotherapy or counselling to help an employee recover from injury or illness. It is separate from ongoing PMI cover.

Real-World Examples

Director individual PMI

Richard's company pays £1,500 per year for his private health insurance with Bupa. The company saves £375 in CT. Richard pays £600 in income tax (40% rate) on the BIK. The company pays £207 in Class 1A NI. Total cost: £1,932 vs earning £2,500 gross to pay privately (saving roughly £570).

Family cover through the company

A director adds her family to the company PMI policy at £3,200 per year. The full £3,200 is a BIK on the director, costing £1,280 in income tax at 40%. While the BIK tax is significant, buying the same family cover personally would require earning £5,333 gross, making the company route substantially cheaper.

Employee group scheme

A small tech company with 5 employees takes out a group PMI policy at £800 per person per year (£4,000 total). Each employee has an £800 BIK. The company deducts £4,000 from profits and the group rate is 20% cheaper than individual policies would be.

Common Mistakes to Avoid

  • Failing to report private health insurance on P11D forms - this is one of the most commonly missed Benefits in Kind and triggers penalties during HMRC investigations.
  • Assuming company-paid PMI is tax-free because it is a business expense - the company gets CT relief but the individual always pays BIK tax.
  • Not comparing the tax cost of company PMI with personal purchase to confirm the company route is actually more efficient for your specific tax position.
  • Forgetting that the company must also pay Class 1A NI at 13.8% on the benefit value, which is an additional cost beyond the premium itself.

Frequently Asked Questions

Is private health insurance tax-free through a limited company?

No. The company gets Corporation Tax relief on the premium, but you pay income tax on the benefit value. Despite this, it is still cheaper than buying PMI from taxed personal income because the BIK route avoids full income tax and NI on equivalent salary.

Can I include my family on the company health insurance?

Yes, but the full premium (including family members) is reported as your Benefit in Kind. For a £3,000 family policy, a 40% taxpayer would pay £1,200 extra income tax. Some directors choose company cover for themselves and private purchase for family members to optimise the tax position.

Does the company have to offer PMI to all employees?

No. Unlike some benefits, there is no requirement to offer PMI to all employees for the company to get tax relief. However, offering it only to directors may attract HMRC scrutiny, and offering it company-wide is better for staff retention. Group schemes with more members usually have lower per-person premiums.

Can I claim back medical treatment costs instead of having insurance?

Individual medical bills paid by the company are also BIK, reported on P11D. There is a limited exemption of £500 per year for employer-provided medical treatment to help employees return to work after illness or injury. Ongoing or routine medical costs are fully taxable benefits.

What about income protection or critical illness cover?

Income protection insurance paid by the company is treated differently from PMI. The premiums are deductible for the company, and the premiums themselves are not a BIK. However, any benefits paid out under the policy are taxed as employment income. Critical illness cover has different rules again. Consult your accountant for the specific product.

Source: HMRC Employment Income Manual EIM21765 - Medical treatment and medical insurance, and ITEPA 2003 s201-210

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