TL;DR
As a leading FCA-authorised UK insurance broker that has arranged over 900,000 policies, WeCovr knows that understanding the nuances of private medical insurance is key. This guide unpacks the tax treatment of company PMI, helping you make an informed decision for your business and your team. WeCovr explains tax treatment for companies providing PMI Private Medical Insurance (PMI) is one of the most highly valued employee benefits a UK company can offer.
Key takeaways
- Attract and Retain Top Talent: In a competitive job market, a strong benefits package can be the deciding factor for a candidate.
- Reduce Sickness Absence: Faster access to treatment means employees are back on their feet and back to work sooner. According to the Office for National Statistics (ONS), an estimated 185.6 million working days were lost because of sickness or injury in 2022, the highest level in over a decade.
- Boost Morale and Productivity: Employees who feel cared for are typically more engaged, loyal, and productive.
- Access to Additional Wellness Perks: Many modern policies include 24/7 virtual GP services, mental health support, and discounts on gym memberships.
- Illustrative estimate: Your company's annual profit is £100,000.
As a leading FCA-authorised UK insurance broker that has arranged over 900,000 policies, WeCovr knows that understanding the nuances of private medical insurance is key. This guide unpacks the tax treatment of company PMI, helping you make an informed decision for your business and your team.
WeCovr explains tax treatment for companies providing PMI
Private Medical Insurance (PMI) is one of the most highly valued employee benefits a UK company can offer. It sends a powerful message: you care about your team's health and wellbeing. But beyond the morale boost, business owners and directors often ask a crucial question: "Is providing PMI a tax-deductible business expense?"
The short answer is yes. For a limited company, the cost of a private medical insurance policy for its employees is generally considered an allowable business expense.
However, the full tax landscape is more detailed. It involves liabilities for the employee and specific rules that every business owner should understand. In this comprehensive guide, we'll explore the tax treatment from both the company's and the employee's perspective, so you can see the complete picture.
What is Business Private Medical Insurance?
Before diving into the tax details, let's clarify what business PMI is. It's a health insurance policy purchased by a company to provide its employees (and often their families) with access to private healthcare.
The core purpose is to bypass lengthy NHS waiting lists for eligible treatments, allowing staff to get diagnosed and treated faster. This can lead to a quicker return to work, minimising disruption and reducing the impact of sickness absence on the business.
Key Benefits of Offering Company PMI:
- Attract and Retain Top Talent: In a competitive job market, a strong benefits package can be the deciding factor for a candidate.
- Reduce Sickness Absence: Faster access to treatment means employees are back on their feet and back to work sooner. According to the Office for National Statistics (ONS), an estimated 185.6 million working days were lost because of sickness or injury in 2022, the highest level in over a decade.
- Boost Morale and Productivity: Employees who feel cared for are typically more engaged, loyal, and productive.
- Access to Additional Wellness Perks: Many modern policies include 24/7 virtual GP services, mental health support, and discounts on gym memberships.
Crucial Note: Standard private medical insurance in the UK is designed to cover acute conditions – illnesses or injuries that are short-term and likely to respond quickly to treatment. It does not cover chronic conditions (like diabetes or asthma) or pre-existing conditions you had before taking out the policy.
Is PMI a Tax-Deductible Business Expense? The Company Perspective
For a limited company, the premiums paid for an employee health insurance scheme are a legitimate business running cost. This means you can deduct the full cost of the policy from your company's revenue when calculating your profit.
This deduction reduces your total profit figure, which in turn reduces your company's Corporation Tax bill.
How does this work in practice?
Let's use a simple example.
- Illustrative estimate: Your company's annual profit is £100,000.
- The main rate of Corporation Tax is 25% (as of 2025).
- Illustrative estimate: Your Corporation Tax bill would be £100,000 x 25% = £25,000.
Now, let's say you introduce a PMI scheme for your team, and the total annual premium is £10,000. (illustrative estimate)
- Illustrative estimate: This £10,000 is deducted from your profit: £100,000 - £10,000 = £90,000.
- Illustrative estimate: Your new Corporation Tax bill is calculated on this lower profit: £90,000 x 25% = £22,500.
By providing PMI, your company has saved £2,500 in Corporation Tax. (illustrative estimate)
A Deeper Look: Corporation Tax and National Insurance
While the Corporation Tax deduction is straightforward, there's another important consideration for the company: Employer's National Insurance Contributions (NICs).
Because PMI is considered a 'Benefit in Kind' (a non-cash benefit forming part of an employee's remuneration), the company must pay Class 1A National Insurance on the value of the premiums.
- The Class 1A NICs rate for the 2024/2025 tax year is 13.8%.
- This is an additional cost to the business, but crucially, the cost of the premiums plus the Class 1A NICs are both allowable expenses for Corporation Tax purposes.
Let's refine our previous example:
- PMI Premium Cost (illustrative): £10,000
- Class 1A NICs Payable (illustrative): £10,000 x 13.8% = £1,380
- Total Cost to Business (illustrative): £10,000 + £1,380 = £11,380
- Total Deductible Expense (illustrative): This entire £11,380 can be offset against company profits.
- Corporation Tax Saving (illustrative): £11,380 x 25% = £2,845
- Net Cost to the Company (illustrative): £11,380 (Total Outlay) - £2,845 (Tax Saving) = £8,535
So, a £10,000 health benefit for your team has a true net cost to the business of £8,535 after all tax relief is accounted for. (illustrative estimate)
| Company Cost Breakdown | Example Amount | Tax Implication |
|---|---|---|
| Annual PMI Premium | £10,000 | Allowable for Corporation Tax relief |
| Class 1A NICs (@13.8%) | £1,380 | Allowable for Corporation Tax relief |
| Total Business Cost | £11,380 | This is the total deductible expense |
| Corporation Tax Relief (@25%) | (£2,845) | This is the tax saved by the company |
| Net Cost to Company | £8,535 | The final cost after tax relief |
The Employee's Perspective: Understanding Benefit in Kind (BIK) Tax
This is where the other side of the tax coin comes into play. While the company gets tax relief, the employee who receives the benefit has to pay income tax on it.
HMRC views private medical insurance as a Benefit in Kind (BIK). This means it's treated as part of the employee's income, and they must pay tax on the value of the premium.
How is this handled?
- The P11D Form: At the end of each tax year, the employer must complete a P11D form for every employee who received benefits. This form details the type of benefit and its 'cash equivalent' – in this case, the cost of their PMI premium.
- HMRC Notification: The employer sends this information to HMRC.
- Tax Code Adjustment: HMRC will then adjust the employee's tax code for the following year to collect the tax owed. This means the employee will pay a little more tax each month through their payroll (PAYE), effectively paying for the benefit. They do not need to pay a lump sum.
Example of Employee Tax Liability
Let's say an individual employee's PMI premium costs £800 for the year. (illustrative estimate)
- For a Basic Rate Taxpayer (20%) (illustrative): The tax owed would be £800 x 20% = £160 per year (or about £13.33 per month).
- For a Higher Rate Taxpayer (40%) (illustrative): The tax owed would be £800 x 40% = £320 per year (or about £26.67 per month).
- For an Additional Rate Taxpayer (45%) (illustrative): The tax owed would be £800 x 45% = £360 per year (or about £30.00 per month).
It's vital for companies to communicate this clearly to staff when introducing a PMI scheme, so they understand the small impact on their take-home pay. Despite this tax, the vast majority of employees see it as a highly valuable benefit, as the monthly tax cost is a fraction of what they would pay for an equivalent individual policy.
Special Cases and Exceptions
The rules are fairly consistent, but there are some specific scenarios worth noting.
1. Sole Traders and Partnerships
The tax treatment for unincorporated businesses is different.
- Sole Traders: If you are a sole trader, you cannot claim PMI for yourself as a business expense. HMRC considers this a personal expense paid for out of your taxed profits. However, if you employ other people, you can claim the cost of their PMI as an allowable business expense, just like a limited company.
- Partnerships: For traditional partnerships, PMI for the partners themselves is not usually an allowable expense. For employees of the partnership, it is. The rules for Limited Liability Partnerships (LLPs) can be more complex, and it's wise to seek advice from an accountant.
2. Limited Company Directors
A director is an employee of their limited company. Therefore, private medical insurance for a company director is treated in exactly the same way as for any other employee:
- The premium is an allowable business expense for the company.
- The director must pay income tax on the benefit, which is reported on their P11D.
This applies even if you are the sole director and employee of your own limited company.
3. Trivial Benefits Exemption
HMRC allows for 'trivial benefits' to be provided to employees tax-free. However, the rules are strict:
- Illustrative estimate: The cost must be £50 or less.
- It cannot be cash or a cash voucher.
- It cannot be a reward for work or performance.
- It cannot be part of their contractual terms.
An ongoing private medical insurance policy, which is contractual and costs more than £50 per year, will never qualify as a trivial benefit. (illustrative estimate)
Why Offer PMI? The Benefits Outweigh the Tax
Despite the employee's BIK tax liability, the case for offering company health cover remains incredibly strong. The value received far exceeds the small monthly tax cost.
Faster Treatment, Healthier Workforce
The primary benefit is speed. NHS waiting lists for consultant-led elective care in England remain a significant challenge. The latest data from NHS England shows that millions are waiting for treatment.
| Healthcare Stage | Typical NHS Wait | Typical Private Wait | Impact on Business |
|---|---|---|---|
| GP Appointment | Days to weeks | Same day / 24hrs (with virtual GP) | Immediate advice, less worry |
| Specialist Consultation | Months | Days to weeks | Faster diagnosis, clear action plan |
| Scans (MRI/CT) | Weeks to months | Days | Quicker path to understanding the issue |
| Surgical Procedure | Months to over a year | Weeks | Employee returns to health and work faster |
By providing PMI, you are giving your team a way to bypass these queues, getting them the diagnosis and treatment they need to recover quickly. This directly translates to fewer days lost to sickness and a more present, healthy, and productive workforce.
A Holistic Approach to Wellbeing
Modern private health cover is about more than just surgery. The best PMI providers offer a suite of preventative and supportive services:
- Mental Health Support: Access to counselling and therapy without a long wait is a vital benefit in today's world.
- 24/7 Virtual GP: Speak to a doctor via phone or video call, often within hours, for quick advice and prescriptions.
- Wellness Programmes: Many policies include resources for improving diet, sleep, and fitness, and even offer discounted gym memberships.
At WeCovr, we go a step further. When you arrange a PMI or Life Insurance policy through us, we provide complimentary access to our AI-powered nutrition app, CalorieHero, to support your team's healthy lifestyle goals. We also offer discounts on other types of business and personal insurance, adding even more value.
How WeCovr Helps You Find the Best PMI Policy
The UK private medical insurance market is complex, with numerous providers, policy types, and underwriting options. Trying to compare them all yourself can be overwhelming. This is where a specialist PMI broker like WeCovr adds immense value.
- Expert, Impartial Advice: We are authorised and regulated by the Financial Conduct Authority (FCA). Our job is to understand your business needs, your budget, and your team's priorities.
- Market Comparison: We do the hard work for you, comparing policies from leading UK insurers like Aviva, Bupa, AXA Health, and Vitality to find the perfect match.
- No Extra Cost: Our service is free to you. We are paid a commission by the insurer you choose, so you get expert advice without it affecting your premium.
- Ongoing Support: We're here to help with claims queries and at renewal time to ensure your policy continues to offer the best value.
Navigating the tax rules and policy details is our speciality. We can help you set up a scheme that maximises value for your employees while being as tax-efficient as possible for your company.
Do I need to declare company-paid PMI on my self-assessment tax return?
Is private medical insurance tax-deductible for a sole trader in the UK?
Can a company pay the employee's tax on the PMI benefit?
What is the difference between PMI and a Health Cash Plan for tax purposes?
The Final Verdict
Providing private medical insurance is a clear, tax-efficient investment in your company's most valuable asset: its people. For the business, it is a fully tax-deductible expense that helps reduce your Corporation Tax bill. For the employee, it provides access to fast, high-quality healthcare for a small monthly tax cost.
Ready to explore how a private medical insurance scheme could benefit your business?
Contact WeCovr today for a free, no-obligation quote. Our expert advisors are ready to help you compare the market and find the perfect health cover for your team.
Sources
- Office for National Statistics (ONS): Mortality, earnings, and household statistics.
- Financial Conduct Authority (FCA): Insurance and consumer protection guidance.
- Association of British Insurers (ABI): Life insurance and protection market publications.
- HMRC: Tax treatment guidance for relevant protection and benefits products.
