Summary:

What it is: HMRC allows companies to pay for a health-screening assessment and/or a medical check-up for employees without them being recognised as a chargeable benefit

HMRC reference:
‍https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21765
https://www.gov.uk/expenses-and-benefits-medical-treatment/whats-exempt
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Here's how it works:

As freelancers and contractors, it isn't just the health of your company you need to focus on, but also the health and wellness of yourself! One way to promote a balance and potentially save tax is through company-sponsored health screenings and medical check-ups. It’s not just beneficial for employee health — it's also a savvy business decision.

Your company can fund one health screening and one medical check-up per employee each tax year. Here’s what that means for you:

What counts as a check-up or health screening?

• A health screening is a preventive service designed to identify any employees who might be at an increased risk of health issues.
• A medical check-up involves an examination by a health professional to determine an employee's state of health, if for example they're known to already be at a high risk.
• Note, this tax exemption does not extend to medical treatments. If a treatment is included as holistic part of the service, then the whole cost could be classed as a benefit.

Tax Exemption Eligibility

For these check-ups and screenings to be tax-exempt, they must meet the following criteria:

• Employees: This is only available to employees. Therefore, as an example, your company could not pay for this for a spouse, unless they were also an employee.
• Universal Availability: The health screenings and medical check-ups should be for all employees
• Freelancers are eligible: If you're the only person in the company, you can still claim and benefit from this tax exemption.

This perk is not just a boon for your well-being but also serves as a tax-efficient measure for your business. Ensuring these medical benefits are properly structured can result in significant tax savings.

A Real-World Example for Tax Savings

Let's use a real world example below to illustrate how you could save £417 of tax using this tax tip.

Let's assume that:  

• You're a freelancer operating through a limited company
• You're a higher rate tax payer - already earning over £50,271 personally
• You pay for a health screening that costs £500
• Assumed higher rate corporation tax rate of 25%

Tax savings:

1. Corporation Tax Saved: Your company saves £125 of corporation tax  (25% * £500) by expensing the health check through your company
2. Personal income tax avoided: To cover the cost if you were paying yourself, you’d need to personally take £755 of dividends - and then pay £255 of income tax to leave you with £500 after tax. By paying for the check-up through the business, you avoid the need to take extra dividends and pay this £255 of tax.  
3. VAT: VAT won't come into play here, as medical services are generally exempt from UK VAT.

Total tax savings:

Adding all these savings together gives you a total tax saving of £380, simply by buying the medical check-up through the business, rather than paying for it personally. Of course, the actual tax saved will depend on your circumstances and the tax thresholds that you and your company fall into.

Not only is the company benefiting from healthier employees, but you’re also maximising company finances in a tax-efficient manner.

How do you claim the tax saving?

Claiming the tax saving in Mighty is incredibly easy, here's how to do so in 3 simple steps.

1. Buy the advice through your company, and find the transaction in your bank feed
2. Select the transaction and categorise it as 'Staff Welfare' under the Overheads tab
3. Click 'Approve' and Mighty will automatically apply the tax savings for you in real time.

And that's it, you've benefitted yourself with the health screening and your company has saved tax.

If you're not with Mighty: Make a note of this transaction and let your accountant know what the specification transaction(s) is for. They should then be able to claim the exemption and apply the tax deduction manually for you.

Try Mighty for free here.

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Automate your bookkeeping, enjoy real-time tax insights, and effortlessly claim tax savings on health check-ups with our easy-to-use system and expert support.

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