As freelancers and contractors, you don’t have generous company sick pay, so staying healthy can be an important consideration.
Medical Insurance pays for you to have private medical treatment, avoiding lengthy waiting times on the NHS. You therefore get treatment exactly when you need it the most.
You're likely asking, "Can I expense medical insurance through my limited company?" The simple answer is 'yes', but there are personal tax implications. Let’s take a look.
What Qualifies as a Tax-Deductible Expense? Tax-deductible expenses are those that you can deduct from your company's income, thus reducing your profits, and in turn your overall tax bill. But the rules governing what you can claim are specific and regulated by HMRC.
Health insurance premiums can be claimed as a deductible business expense, reducing your corporation tax liability. However, HM Revenue and Customs (HMRC) also considers these premiums as a ‘benefit in kind’.
As such, they are deemed a taxable benefit, requiring reporting on a P11D form every year in which the benefit is received and creating a Class 1A National Insurance liability for the company. This is calculated at 13.8% of the benefit-in-kind value (i.e. the total premiums paid). So for example, for a policy that costs you £600 over the course of the year, the company would have to pay Class 1A National Insurance of £82.80.
So, the total company cost of the medical insurance would be £682.80. However, as we said above, the £600 medical insurance would be a tax-deductible expense, but Class 1A NIC payments are also tax deductible. Therefore, you would receive corporation tax relief at the marginal rate at which you pay - 19% if profits are less than £50,000, 26.5% if profits are between £50,000 - £250,000 and 25% thereafter. So, whilst you will have to pay £82.80, the company will save £129.73 (19%), £170.70 (25%) or £180.94 (26.5%).
If the company pays for medical insurance for you, it is highly likely that you will personally incur a ‘Benefit in Kind’ charge. This benefit-in-kind charge is calculated by adding the value of the insurance you’ve received to your other taxable income, effectively meaning that the tax you will pay on the benefit depends on the tax bracket you fall into. For example, this could either be 20% (basic rate), 40% (higher rate) or 45% (additional rate). Using the example above of £600 premiums to pay per annum, this could increase your tax bill by £120 (20%), £240 (40%) or £270 (45%). There also could be other scenarios where the tax payable might be higher, such as if benefit pushed your income above £100,000 (i.e. the personal allowance loss threshold), so careful planning is required.
To understand the net benefit of buying medical insurance through the company, it’s vital to the corporation tax saving against the impact on your personal tax bill.
As a general rule, if you are going to buy medical insurance anyway, it is often slightly more tax efficient to buy medical insurance through the company.
As a recap of the above scenario, if we look at a higher rate taxpayer paying 26.5% corporation tax and paying £600 per annum for medical insurance:
Additional personal tax: -£240
Class 1A National Insurance: -£82.80
Corporation Tax Saved: +£180.94
Looking at this holistically, this has cost you and the business an additional £141.86 in tax. So, what if you were to pay this personally? Assuming you need to first withdraw the money from the business as dividends, you would need to pay £202.50 in tax (i.e. £600 at the higher rate dividend tax rate of 33.75%). So you have saved £21.56 in tax by paying for this through your company.
Typically, the more money you pay through payroll/dividends, and the higher rate of personal income tax you pay, the greater this tax saving will become. However it’s important to always get personal advice based on your individual circumstances.
As a Mighty client, you can discuss this with an accounting expert at any time. Contact us via support and we’ll be happy to help.
Some health treatments are exempt from benefit in kind charges, this makes them exceptionally tax efficient to put through the company.
These include:
Further information on the relevant tax regulations can be accessed through HMRC’s provided guidance here. However, it remains crucial to seek personalised advice from your accountant tailored to your specific situation.
Try Mighty today. 30 days free - no card required.
Many insurance providers offer policies which allow you to add your spouse and children. You can choose this type of cover and still pay the premium through your company.
Some insurers offer a discount if you take out cover as a couple. You may also be able to add your children at no extra cost or only pay for the first one.
If you choose to extend coverage to your family, it's essential to look at the tax implications for this.
If you do choose to buy private medical cover, Mighty makes claiming these expenses quick and easy - taking care of all the bookkeeping and tax savings for you.
To claim Medical Insurance in Mighty:
Understanding whether to expense medical insurance through your limited company involves balancing the benefits and the potential tax implications. With Mighty, you don't have to navigate these decisions alone.
Ready to optimise your accounting and make informed decisions with ease? Join Mighty today to save money, time and tax.
.svg){kind=icon}
