TL;DR
As a UK small business owner, you are the engine of your company. Your health, and that of your key staff, is your most valuable asset. At WeCovr, where we've helped arrange hundreds of thousands of policies, we know that waiting for NHS treatment can impact productivity and profitability.
Key takeaways
- Reduce Sickness Absence: Getting an employee diagnosed and treated in weeks rather than months means they are back at work, fully productive, far sooner.
- Boost Productivity: A healthy, motivated team is a productive team. Knowing they are cared for reduces stress and improves focus.
- Attract & Retain Top Talent: In a competitive job market, a private health insurance plan is a highly sought-after employee benefit that sets you apart from competitors.
- Protect Key People: For a small business, the long-term absence of a key director or specialist employee can be devastating. PMI acts as a vital continuity tool.
- Foster a Positive Culture: Offering health insurance demonstrates a genuine commitment to your team's wellbeing, building loyalty and morale.
As a UK small business owner, you are the engine of your company. Your health, and that of your key staff, is your most valuable asset. At WeCovr, where we've helped arrange hundreds of thousands of policies, we know that waiting for NHS treatment can impact productivity and profitability. This is where small business private medical insurance (PMI) becomes a powerful tool.
This definitive guide will walk you through how small business private health insurance works, what it costs, the cover you can expect, and—crucially—whether it is a tax-efficient choice for your company.
How small business private health insurance works, what it costs and whether its tax efficient
Small business private health insurance is a company-funded policy that provides directors and employees with fast access to private medical diagnosis and treatment for acute conditions. The company pays the premium, which is typically an allowable business expense, reducing its corporation tax bill. For the employee, it is a 'benefit-in-kind', meaning they pay income tax on the value of the premium.
Despite the personal tax liability, it is often more cost-effective for the business to fund the cover than for an individual to pay from their post-tax salary. Costs vary based on age, location, and cover level, with a typical policy for a 35-year-old employee outside London starting from around £40-£60 per month.
What is Small Business Private Health Insurance?
Small Business Health Insurance, often called Business PMI or a Group Health Insurance scheme, is a private medical insurance policy purchased by a company to cover its employees. In the UK, this typically applies to businesses with between 2 and 249 employees. For sole traders or single-director companies, individual policies can be used, which we'll also cover.
The core purpose of the insurance is simple: to bypass NHS waiting lists and provide swift access to private healthcare for acute medical conditions that arise after the policy begins.
Key Point: Standard UK private medical insurance is designed for acute conditions (e.g., joint pain requiring surgery, hernias, cataracts, diagnosis of new symptoms). It is not designed to cover chronic conditions (like diabetes, asthma, or high blood pressure) or pre-existing conditions you have had in the years before taking out the policy.
How is it different from a personal policy?
| Feature | Small Business Policy | Personal Policy |
|---|---|---|
| Who Pays? | The limited company pays the premium. | The individual pays from their post-tax income. |
| Tax Treatment | An allowable business expense for the company. A taxable benefit for the employee. | No tax relief. Paid for with money you've already paid tax on. |
| Cost | Often cheaper per person due to group rates. | Standard individual pricing. |
| Underwriting | More flexible options, including 'Medical History Disregarded' for larger groups. | Typically 'Moratorium' or 'Full Medical Underwriting'. |
Why Should a Small Business Owner Consider PMI?
The decision to invest in PMI goes beyond just health; it's a strategic business decision. With NHS waiting lists in England reaching 7.54 million in September 2023 according to official NHS data, the business case has never been stronger.
Benefits for Your Business:
- Reduce Sickness Absence: Getting an employee diagnosed and treated in weeks rather than months means they are back at work, fully productive, far sooner.
- Boost Productivity: A healthy, motivated team is a productive team. Knowing they are cared for reduces stress and improves focus.
- Attract & Retain Top Talent: In a competitive job market, a private health insurance plan is a highly sought-after employee benefit that sets you apart from competitors.
- Protect Key People: For a small business, the long-term absence of a key director or specialist employee can be devastating. PMI acts as a vital continuity tool.
- Foster a Positive Culture: Offering health insurance demonstrates a genuine commitment to your team's wellbeing, building loyalty and morale.
Benefits for Your Employees (and You):
- Fast Access to Specialists: See a consultant quickly to get a diagnosis and a treatment plan in place.
- Choice and Control: Choose your specialist and hospital from an approved list.
- Comfort and Privacy: Receive treatment in a private hospital with your own room, en-suite facilities, and more flexible visiting hours.
- Access to Advanced Treatments: Gain access to certain drugs and treatments that may not be available on the NHS due to funding decisions.
Real-Life Scenario: Imagine your lead developer, aged 40, needs a knee operation. The NHS waiting list is 14 months. For 14 months, she is in pain, her mobility is limited, and her focus at work is impacted.
With a business PMI policy, she could see a specialist within a week, have the surgery in a private hospital within a month, and be back on her feet and fully focused on your business's critical projects. The cost of the policy is a fraction of the cost of lost productivity and project delays.
The Tax Implications of Small Business Health Insurance: Is it Tax Efficient?
This is the number one question we get from company directors. The answer is nuanced, but in most cases, it is highly tax efficient for the company to pay for the cover.
Let's break it down into two parts: the impact on the business and the impact on the employee.
1. For the Business (The Limited Company)
The premiums your company pays for employee health insurance are generally considered an allowable business expense.
- This means the full cost of the policy can be deducted from your company's revenue before calculating your profit.
- This, in turn, reduces your Corporation Tax bill.
Example Calculation:
- Your business has a taxable profit of £100,000.
- The annual health insurance premium for you and two employees is £3,000.
- You can deduct this £3,000 as a business expense.
- Your new taxable profit is £97,000.
- Assuming a Corporation Tax rate of 25%, your tax bill is reduced by £750 (£3,000 x 25%).
The net cost of the policy to the business is effectively reduced.
2. For the Employee (Including Directors)
Because the employee is receiving a personal benefit paid for by the company, HMRC treats private health insurance as a 'benefit in kind'.
- The value of the premium is added to the employee's income for tax purposes.
- The employee must pay Income Tax on this amount at their marginal rate (20%, 40%, or 45%).
- The company must report this benefit to HMRC using a P11D form each year.
- The company is also liable for Class 1A National Insurance Contributions (NICs) on the value of the premium. The rate for 2024/25 is 13.8%.
The Verdict: Is It Worth It?
Let's compare the two ways of paying for a £1,200 annual health insurance premium for a director who is a 40% higher-rate taxpayer.
| Scenario | Company Pays for PMI | Director Pays Personally |
|---|---|---|
| Gross Cost | £1,200 (PMI Premium) | £2,000 (Salary/Dividend needed to get £1,200 net) |
| Company Tax Relief | -£300 (at 25% Corp Tax) | £0 |
| Company NICs | +£165.60 (13.8% on £1,200) | £0 |
| Net Cost to Company | £1,065.60 | £2,000 (cost of paying the salary) |
| Personal Tax for Director | £480 (40% of £1,200) | £800 (40% income tax on £2,000 salary) |
Assumes £2,000 in salary is needed to leave £1,200 in post-tax income to pay the premium personally.
As you can see, even after accounting for the benefit-in-kind taxes, it is significantly more efficient for the company to pay the premium. The total cash leaving the business and the director's pocket is lower.
An expert broker, like WeCovr, can help you find a policy that balances cost and benefits, maximising this tax efficiency.
How Much Does Small Business Health Insurance Cost?
The cost of a small business health insurance policy is not one-size-fits-all. Insurers calculate premiums based on a range of risk factors.
Key Factors That Determine Your Premium:
- Number of Employees: The more people on the policy, the higher the total cost, but the price per person often decreases.
- Average Age: Premiums are heavily linked to age. A younger workforce will be significantly cheaper to insure than an older one.
- Location: The business's postcode matters. Premiums are higher in areas with more expensive private hospitals, such as Central London.
- Level of Cover: A basic plan covering only in-patient treatment will be much cheaper than a comprehensive plan with out-patient, mental health, and dental cover.
- Excess: This is the amount an employee pays towards their first claim in a policy year. A higher excess (e.g., £500) will lower the overall premium.
- Underwriting Type: The method the insurer uses to assess pre-existing conditions affects the price.
- Industry: Some manual or higher-risk occupations may attract slightly higher premiums.
Sample Small Business PMI Costs (2026 Estimates)
To give you an idea, here are some illustrative monthly costs per employee. These are for guidance only.
| Business Profile | Average Age | Location | Indicative Monthly Premium Per Person |
|---|---|---|---|
| 3-person Tech Start-up | 32 | Manchester | £45 - £65 |
| 10-person Accountancy Firm | 45 | Bristol | £70 - £95 |
| 5-person Construction Co. | 38 | London | £85 - £120 |
| 20-person Marketing Agency | 35 | Edinburgh | £55 - £75 |
Estimates are based on a comprehensive policy with a £250 excess. For a precise figure, a personalised quote is essential.
What Does Small Business PMI Typically Cover?
A key advantage of PMI is that you can tailor the policy to suit your budget and your team's needs. Cover is typically split into a core component and optional extras.
Core Cover (Included as Standard)
This is the foundation of every PMI policy and focuses on the most expensive treatments.
- In-patient & Day-patient Treatment: Covers costs when you are admitted to a hospital bed for surgery or treatment, including operating theatre costs, nursing care, and specialist fees.
- Cancer Cover: This is a huge selling point. Most policies offer extensive cancer cover, including chemotherapy, radiotherapy, and surgery. Many provide access to experimental drugs not yet available on the NHS.
- Diagnostics: MRI scans, CT scans, and PET scans are usually covered when part of in-patient or day-patient care.
- Virtual GP Services: 24/7 access to a GP via phone or video call is now a standard feature, helping staff get advice without leaving work.
Popular Optional Extras
These allow you to build a more comprehensive and attractive benefits package.
| Optional Extra | What it Covers | Why Add It? |
|---|---|---|
| Out-patient Cover | Specialist consultations and diagnostic tests that don't require a hospital bed. This is the most common and impactful add-on. | Speeds up the initial diagnosis process significantly. Without it, you need an NHS diagnosis before private treatment can begin. |
| Mental Health Cover | Access to psychiatrists, psychologists, and therapists for conditions like stress, anxiety, and depression. | Crucial for employee wellbeing and tackling a leading cause of long-term absence. |
| Therapies Cover | Physiotherapy, osteopathy, chiropractic treatment, etc. | Essential for helping employees recover from musculoskeletal injuries, a common workplace issue. |
| Dental & Optical | Money back towards routine check-ups, dental treatment, and the cost of glasses or contact lenses. | A highly visible and appreciated day-to-day benefit. |
| Extended Hospital List | Provides access to more prestigious or centrally located hospitals, particularly in London. | Important for businesses wanting to offer the absolute best choice of facilities. |
At WeCovr, we provide complimentary access to our AI-powered calorie and nutrition tracking app, CalorieHero, to all our health and life insurance clients, adding further value to your wellbeing programme.
Understanding Key PMI Jargon for Business Owners
The world of insurance can be filled with confusing terms. Here’s a plain English guide to the concepts you need to know.
Underwriting This is how an insurer assesses your medical history to decide what they will and won't cover.
- Moratorium (Mori) Underwriting: This is the most common type for small businesses. The insurer will not cover any condition for which you have had symptoms, treatment, or advice in the 5 years before the policy started. However, if you go 2 full years on the policy without any trouble from that condition, it may become eligible for cover. It's an "automatic" approach with no medical forms upfront.
- Full Medical Underwriting (FMU): You and your employees complete a detailed health questionnaire. The insurer reviews your medical history and lists specific conditions that will be permanently excluded from cover. The benefit is certainty from day one.
- Medical History Disregarded (MHD): This is the premium option, usually only available to groups of 20+ employees. As the name suggests, the insurer agrees to cover pre-existing conditions, subject to the policy terms. It’s the most comprehensive but also the most expensive.
Excess The fixed amount you agree to pay towards the cost of a claim each year. For example, with a £250 excess, you pay the first £250 of your treatment costs, and the insurer pays the rest. Choosing a higher excess is a simple and effective way to lower your monthly premium.
6-Week Option A popular cost-saving feature. If the NHS can provide the in-patient treatment you need within six weeks of when it should take place, you agree to use the NHS. If the NHS waiting list is longer than six weeks, your private cover kicks in. This significantly reduces the premium as it removes claims for more routine procedures with shorter NHS waits.
Choosing the Right Insurer and Policy
The UK private health insurance market is dominated by a few excellent, well-established providers. The main names you will encounter are:
- Bupa
- AXA Health
- Aviva
- Vitality
- WPA (Western Provident Association)
There is no single "best" provider. The right choice depends entirely on your specific circumstances: your budget, the age of your team, your location, and the level of cover you want. For example, Vitality is known for its wellness programme that rewards healthy living, while Bupa and AXA are praised for their extensive hospital networks and comprehensive cancer cover.
This is where an independent broker becomes invaluable.
Why use a broker like WeCovr?
- Independent Advice: We are not tied to any single insurer. Our loyalty is to you, our client. We are authorised and regulated by the Financial Conduct Authority (FCA).
- Market Comparison: We do the legwork, comparing policies and prices from across the market to find the optimal solution for your business. This saves you hours of research.
- Expert Negotiation: We understand how to tailor policies to get you the cover you need at the most competitive price, ensuring you don't pay for benefits you won't use.
- No Extra Cost: Our service is free. We are paid a commission by the insurer you choose, which is already built into the premium. You get expert advice and support without it costing you a penny more.
Furthermore, when you arrange PMI or Life Insurance with us, we can offer discounts on other essential business cover, like Key Person or Relevant Life insurance.
How to Set Up a Small Business Health Insurance Policy
Getting cover for your team is a straightforward process when you work with an advisor.
- Define Your Goals: Decide who you want to cover (e.g., directors only, all staff) and what your approximate monthly budget is. Think about the most important benefits for your team.
- Speak to an Expert: Contact our team at WeCovr. In a short call, we'll gather the details needed to search the market for you.
- Review Your Personalised Quotes: We will present you with a clear comparison of the best options, explaining the pros and cons of each policy in simple terms.
- Select Your Policy: Choose the plan that best fits your business's needs and budget. We'll help you fine-tune the details, like the excess and any optional extras.
- Complete the Application: We will guide you through the application process to ensure everything is completed accurately.
- Your Team is Covered: Once the insurer approves the application, your policy is live. You and your employees will receive policy documents and membership details, ready to use the cover whenever it's needed.
Is private health insurance a taxable benefit for directors?
Can I just cover myself as a limited company director?
Does small business PMI cover pre-existing conditions?
Ready to Protect Your Business and Your Team?
Investing in private health insurance is one of the most powerful decisions a small business owner can make. It protects your team's health, your company's productivity, and offers significant advantages in attracting and retaining the best people. While the tax rules can seem complex, the net result is a highly efficient way to provide a valuable benefit.
Navigating the market to find the perfect balance of cost and cover takes expertise. Let us help.
Contact the friendly, expert team at WeCovr today for a free, no-obligation quote. We'll compare the UK's leading insurers to find the right health insurance solution for your business.
