TL;DR
As an FCA-authorised expert with over 900,000 policies issued, WeCovr helps UK businesses navigate the complexities of private medical insurance. This guide details how offering PMI is not just a valuable employee benefit, but also a smart financial move for your company, allowing you to save on tax. Claiming premiums as a business expense and staying compliant in 2025 For many UK businesses, offering private medical insurance (PMI) is a cornerstone of their employee benefits package.
Key takeaways
- Your Company's Profit (illustrative): £150,000
- Annual PMI Premium for your team (illustrative): £10,000
- Profit after PMI expense (illustrative): £140,000 (£150,000 - £10,000)
- Main Corporation Tax Rate (2025): 25%
- The total cost of their annual PMI premium.
As an FCA-authorised expert with over 900,000 policies issued, WeCovr helps UK businesses navigate the complexities of private medical insurance. This guide details how offering PMI is not just a valuable employee benefit, but also a smart financial move for your company, allowing you to save on tax.
Claiming premiums as a business expense and staying compliant in 2025
For many UK businesses, offering private medical insurance (PMI) is a cornerstone of their employee benefits package. It's a powerful tool for attracting and retaining talent, but its financial advantages are often overlooked. When structured correctly, the premiums your company pays for employee health cover can be claimed as an allowable business expense.
So, what does this mean in practice?
Simply put, the money your limited company spends on PMI premiums can be deducted from your firm's revenue before calculating its profit. This, in turn, reduces your overall Corporation Tax bill. The key principle here, as set out by HMRC, is that the expense must be "wholly and exclusively" for the purposes of the trade. Since providing health insurance is a common way to reward and look after staff, it almost always meets this test.
Let's break it down with an example:
- Your Company's Profit (illustrative): £150,000
- Annual PMI Premium for your team (illustrative): £10,000
- Profit after PMI expense (illustrative): £140,000 (£150,000 - £10,000)
- Main Corporation Tax Rate (2025): 25%
Without claiming the PMI expense, your tax bill would be £37,500 (25% of £150,000). By claiming the premium as an expense, your tax bill becomes £35,000 (25% of £140,000). (illustrative estimate)
That's a direct saving of £2,500 on your Corporation Tax bill. (illustrative estimate)
This tax efficiency makes the net cost of providing this highly valued benefit much lower than the headline premium price. It transforms PMI from a simple cost into a tax-efficient investment in your workforce's health and loyalty.
Understanding the Tax Implications for Employees
While the company enjoys a tax deduction, it's crucial to understand how private medical insurance is treated for the employee. When a company pays for an employee's PMI policy, HMRC views this as a 'Benefit-in-Kind' (BIK). This is a non-cash benefit that forms part of the employee's overall remuneration package and is therefore subject to tax.
What is a Benefit-in-Kind (BIK)?
A BIK is essentially any perk that has a monetary value but isn't included in an employee's salary. Think of company cars, gym memberships, or, in this case, private health cover. The value of this benefit is added to the employee's income, and they pay income tax on it at their marginal rate (e.g., 20%, 40%, or 45%).
How is the Tax Calculated?
The amount of tax an employee pays depends on two things:
- The total cost of their annual PMI premium.
- Their personal income tax bracket.
Here's a simple illustration:
| Employee Role | Annual PMI Premium | Employee's Tax Rate | Annual BIK Tax Payable | Monthly Cost to Employee |
|---|---|---|---|---|
| Junior Designer | £800 | Basic Rate (20%) | £160 | £13.33 |
| Senior Manager | £1,200 | Higher Rate (40%) | £480 | £40.00 |
| Director | £1,500 | Additional Rate (45%) | £675 | £56.25 |
As you can see, even for a senior manager, having comprehensive private medical insurance for £40 a month is significantly cheaper than sourcing an equivalent policy on their own. This makes it a highly attractive and cost-effective benefit for the employee, despite the BIK tax. (illustrative estimate)
The Role of P11D Forms in PMI Reporting
If your company provides PMI to its employees, you have a legal obligation to report this to HMRC. This is done using a P11D form.
What is a P11D?
A P11D is an annual form that employers must complete for each employee who receives benefits-in-kind. You declare the cash equivalent of all the benefits and expenses provided during the tax year (which runs from 6th April to 5th April).
- Who is responsible? The employer is responsible for accurately completing and submitting the P11D form.
- What is the deadline? The deadline for submitting P11Ds to HMRC is the 6th of July following the end of the tax year.
- What happens if you miss the deadline? HMRC can issue penalties for late or incorrect filings, so it's vital to stay on top of this administrative task.
Employer's National Insurance Contributions (Class 1A)
In addition to the employee's BIK tax, the employer must pay Class 1A National Insurance Contributions (NICs) on the value of the benefit. For the 2024/25 tax year, the Class 1A NICs rate is 13.8%.
Let's revisit our senior manager example:
- Annual PMI Premium (illustrative): £1,200
- Class 1A NICs Rate: 13.8%
- Employer's NICs Payable (illustrative): £165.60 (£1,200 x 13.8%)
So, the total cost to the company for this employee's policy is the £1,200 premium plus the £165.60 in Class 1A NICs, totalling £1,365.60. Remember, this entire amount is an allowable business expense and can be offset against Corporation Tax. (illustrative estimate)
This process, known as "payrolling benefits," is becoming increasingly common, where the tax is handled through the monthly payroll rather than an end-of-year P11D. An expert broker like WeCovr can provide guidance to ensure your business remains compliant with the latest HMRC rules.
Sole Traders and Partnerships: A Different Tax Landscape
The tax rules for private medical insurance are different for unincorporated businesses like sole traders and partnerships. This is a common point of confusion, so let's clarify it.
For yourself: A sole trader or a partner in a partnership cannot typically claim their own personal PMI premiums as an allowable business expense. HMRC's "wholly and exclusively" rule is interpreted more strictly here. Because you and the business are legally the same entity, the health benefit is considered personal, not solely for the business. Any premiums paid for your own cover must come from your post-tax income.
For your employees: The situation changes if you have employees. If a sole trader or partnership pays for an employee's PMI policy, the premiums are considered an allowable business expense. This cost can be deducted from your business profits before you calculate your income tax liability.
The employee, in turn, will be subject to the same Benefit-in-Kind (BIK) tax rules as an employee of a limited company, and you, as the employer, will be liable for Class 1A NICs on the value of the premium.
Here's a comparison table to make it clear:
| Business Structure | Can the business claim PMI for owners/directors? | Can the business claim PMI for employees? |
|---|---|---|
| Limited Company | Yes, it is an allowable expense. (Director is taxed on BIK). | Yes, it is an allowable expense. (Employee is taxed on BIK). |
| Sole Trader | No, this is considered a personal expense. | Yes, it is an allowable expense. (Employee is taxed on BIK). |
| Partnership | No, this is considered a personal expense for the partners. | Yes, it is an allowable expense. (Employee is taxed on BIK). |
The Business Case for Offering Private Medical Insurance
Beyond the tax efficiencies, providing private medical insurance is one of the most impactful investments a business can make. It sends a clear message that you value your team's health and wellbeing, which pays dividends in several ways.
- Attract and Retain Top Talent: In a competitive job market, a strong benefits package can be the deciding factor for a candidate. PMI is consistently ranked as one of the most desired employee benefits in the UK.
- Reduce Sickness Absence: Fast access to diagnosis and treatment is a primary benefit of PMI. With NHS waiting lists reaching record levels (the referral-to-treatment waiting list in England stood at around 7.54 million in early 2024, according to NHS England), private healthcare can mean the difference between an employee being off work for months versus weeks. This directly reduces absenteeism and minimises disruption to your operations.
- Boost Productivity and Morale: A healthy workforce is a productive one. When employees feel cared for, they are more engaged, loyal, and motivated. Many PMI policies also include proactive health services like 24/7 virtual GP access and mental health support, which can help staff manage health issues before they become serious.
- Demonstrate a Duty of Care: Offering PMI demonstrates a genuine commitment to employee welfare. This can be particularly important in industries with high stress levels or physical demands. According to the Health and Safety Executive (HSE), 875,000 workers in Great Britain reported suffering from work-related stress, depression, or anxiety in 2022/23. Access to swift mental health support through PMI can be a lifeline.
What Does UK Private Medical Insurance Actually Cover?
It is vital for both employers and employees to understand the scope of a typical private medical insurance UK policy. It is designed for specific circumstances and does not replace the NHS.
Crucially, standard UK private medical insurance is designed to cover acute conditions that arise after you take out the policy. An acute condition is a disease, illness, or injury that is likely to respond quickly to treatment and lead to a full recovery.
What is Not Covered?
Equally important is knowing the standard exclusions. PMI policies do not cover pre-existing conditions or chronic conditions.
- Pre-existing Conditions: Any illness, injury, or symptom you had before the policy start date. This includes conditions you've had symptoms of, sought advice for, or received treatment for.
- Chronic Conditions: Long-term illnesses that cannot be cured but can be managed, such as diabetes, asthma, high blood pressure, or arthritis. The NHS will continue to provide care for these conditions.
The table below gives a general overview of what is typically included and excluded.
| Typically Covered by PMI | Typically Not Covered by PMI |
|---|---|
| In-patient and day-patient treatment (hospital stays) | Chronic conditions (e.g., diabetes, asthma) |
| Consultations with specialists | Pre-existing conditions |
| Diagnostic tests (MRI, CT, PET scans) | Accident & Emergency (A&E) visits |
| Cancer treatment (often an extensive benefit) | Routine pregnancy and childbirth |
| Out-patient therapies (e.g., physiotherapy) | Cosmetic surgery (unless for reconstruction) |
| Mental health support (in-patient and out-patient) | Organ transplants (usually) |
| Virtual GP appointments | Drug and alcohol rehabilitation (unless specified) |
Understanding these distinctions is key to managing expectations and ensuring employees see the true value of their health cover.
Navigating Group PMI Schemes vs. Individual Policies
When a business decides to offer health cover, it can do so in two main ways: through a group scheme or by purchasing individual policies for its staff.
Group Private Medical Insurance
This is the most common option for businesses with two or more employees.
- Cost-Effective: Premiums per person are generally lower than for individual policies.
- Simplified Administration: One policy covers the entire group, making it easier to manage.
- Medical History Disregarded (MHD) Underwriting: This is a major advantage for larger schemes (often 15-20+ employees). With MHD, the insurer agrees to cover eligible pre-existing conditions, bypassing the standard exclusion. This is a highly valuable and sought-after feature.
- Other Underwriting Options: For smaller groups, options like 'Moratorium' or 'Full Medical Underwriting' are common, which do exclude recent pre-existing conditions.
Individual Policies for Business
A company can also choose to buy an individual policy for a key director or employee.
- Highly Personalised: The cover can be tailored specifically to that person's needs.
- Flexibility: Useful if you only want to cover one or two specific people.
- Excludes Pre-existing Conditions: These policies are almost always underwritten on a 'Moratorium' or 'Full Medical Underwriting' basis, meaning past medical issues won't be covered.
Choosing the right structure depends on your company's size, budget, and goals. An experienced PMI broker can analyse your needs and recommend the most suitable and tax-efficient approach.
How to Choose the Best PMI Provider for Your Business
With so many providers and policies on the market, selecting the right one can feel daunting. Here’s a structured approach to finding the best private health cover for your team.
- Define Your Budget and Goals: Determine how much you can comfortably allocate per employee, per month. Are you aiming to provide basic cover as a new benefit, or are you looking for a comprehensive plan to rival competitors?
- Assess Your Workforce's Needs: Consider the demographics of your team. A younger workforce might value mental health support and gym discounts, while an older workforce may prioritise comprehensive cancer cover and a wide hospital network.
- Compare Core Policy Features: Look beyond the price. Key variables include:
- Hospital List: Does it include hospitals that are convenient for your employees?
- Out-patient Cover: Is there a limit on the number of consultations or the value of diagnostic tests?
- Excess Level: A higher excess (the amount an employee pays towards a claim) will lower the premium.
- Cancer Cover: Check the level of cover for chemotherapy, radiotherapy, and specialist consultations.
- Utilise an Independent PMI Broker: This is the most efficient and effective way to navigate the market. An independent broker like WeCovr works for you, not the insurers.
- Expert Advice: We understand the nuances of every policy from providers like Bupa, AXA Health, Aviva, and Vitality.
- Market Comparison: We compare dozens of policies to find the perfect fit for your budget and needs.
- No Cost to You: Our service is free, as we are paid a commission by the insurer you choose.
- Ongoing Support: We assist with the application process and can even help with claims queries down the line.
At WeCovr, we pride ourselves on high customer satisfaction. We also offer our PMI and Life Insurance clients complimentary access to our AI-powered calorie and nutrition tracking app, CalorieHero, and provide discounts on other insurance policies, adding even more value to your employee benefits package.
Wellness, Health, and Proactive Care
Modern private medical insurance is about more than just reacting to illness; it's about promoting a proactive approach to health. Encouraging a culture of wellness within your business can lead to a happier, more resilient team and potentially lower long-term insurance costs.
- Nutrition: Small changes can make a big impact. Encourage staff to stay hydrated, provide healthy snack options, and promote balanced meals. Tools like our CalorieHero app can empower employees to take control of their nutrition.
- Activity: Combat a sedentary office culture by encouraging regular movement. Suggest walking meetings, stretch breaks, or even subsidised gym memberships, which are often available at a discount through PMI providers.
- Sleep: Quality sleep is fundamental to both physical and mental health. Promote good sleep hygiene and a healthy work-life balance that allows employees to properly rest and recharge.
- Mental Wellbeing: With stress and burnout on the rise, mental health support is no longer a 'nice-to-have'. Most PMI policies now offer access to counselling, therapy, and digital mental health tools. Fostering an open environment where staff feel comfortable discussing mental health is a vital part of a modern wellness strategy.
Is company private medical insurance a taxable benefit in the UK?
Can a sole trader claim PMI as a business expense?
What is a P11D form and why is it important for private health insurance?
Does company health insurance cover pre-existing conditions?
Ready to explore how private medical insurance can benefit your business and your team?
Contact WeCovr today for a free, no-obligation quote. Our expert advisors will compare the market to find you the best private medical insurance UK has to offer, tailored to your company's unique needs and budget.
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.
