How does health insurance affect my tax?

Health insurance may have an impact on how much tax you pay. For specific advice, it’s best to speak to an accountant or tax adviser, or HM Revenues & Customs (HMRC) directly. We are not tax advisers. This is a guide and details may change at any time.

Your employment status has an impact

If your employer pays for your health insurance, then you’ll usually pay a level of tax that relates to the cost of your insurance premiums. This is because the policy is treated as a ‘benefit in kind’ – a benefit that’s received from employment but not included in your salary or wages.

If, on the other hand, you’re not receiving an income, then there are unlikely to be tax implications for you from having a health insurance policy in place.

Some tax relief may be available

You may be the director or owner of a limited company. At the moment, you’ll be eligible for tax relief on the cost of your health insurance policy as this is a business expenditure – but the business must pay for the policy through the business bank account.

If you’re the director or owner of an unincorporated business (a sole trader or partnership), then the cost of health insurance cover for employees is deductible from the business’s taxable profits. It’s an expense, so it’s eligible for tax relief. However, health insurance for yourself would be classed as personal expenditure. You couldn’t claim tax relief on your own policy.

Every year, as an employer, you’ll submit a ‘P11D’ form to HMRC. This is the end-of-year expenses and benefits form, detailing the salaries or wages of employees who’ve earned £8,500 or more. Alongside the P11D, HMRC asks for a P11D(b) form, which details the amount of Class 1A National Insurance contributions due on expenses and benefits provided to employees during the last financial year. If an employee earns more than £8,500 annually, they’ll need to pay tax on the amount of the benefit received.

Claim payouts are not taxed

Health insurance does not usually pay out sums of money to policyholders directly. Claims are settled directly with the hospitals, facilities or providers of care. But if you do receive a sum of money from your health insurance policy – such as a small payment in lieu of choosing to stay in an NHS hospital perhaps – this won’t be taxed.

Where to find out more information

Better Health Insurance Advice can’t offer guidance on the tax implications of having health insurance. Our expert Healthcare Consultants aren’t trained to offer this kind of advice. We recommend speaking to an independent financial adviser, a tax adviser, or HMRC directly for more details.

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