A recent question one of my clients asked me was ‘Will the amount of tax I pay increase if I go onto my employer’s private healthcare?’ and the answer was actually quite simple so I thought it would make a perfect article for anyone else out there asking the same question. Before going into much more detail, for those of you in a rush the simple answer is ‘yes’ you will pay more tax if you opt in for your employer’s private medical insurance (private healthcare) but it’s in the form of tax on a ‘benefit in kind’. If that makes sense then I hope to have quickly answered your question, however if you need more information then please read on.
Insurance Premium Tax (IPT)
So first and foremost this question is usually asked because people hear about the fact that private medical insurance has an immediate tax added on which is known as an Insurance Premium Tax (IPT)’. However this tax is added onto the cost of the healthcare/insurance itself and therefore is usually paid for by your employer when they actually pay the amount for your private medical insurance so this isn’t where your additional tax is paid.
Benefit in Kind Tax
As mentioned above it is through a ‘benefit in kind’ in which you will have to pay more tax for choosing to enrol on your employer’s private healthcare. This is due to the simple fact that HMRC categorise private medical insurance/healthcare as a ‘benefit in kind’ since you are being given this as a type of ‘bonus’ income which isn’t otherwise accounted for in regards to the tax you pay. Therefore you will have to pay additional tax when you opt-in for private healthcare since it is a benefit in kind and is seen by HMRC as additional income. The amount of additional tax you pay will vary greatly depending on your tax band and how much you earn etc so if you would like to know a calculation of how much additional tax you’ll pay before making your decision then be sure to ask your accounts department before enrolling.
Paying Benefit in Kind Tax
This additional tax on your ‘benefit in kind’ is paid via your PAYE payslip so it will simply be taken along with all the other types of tax you pay as normal.
If you are both self-employed and employed then you must remember to list this benefit in kind on your end of year tax return, even though you’ll have already paid it via PAYE. This is simply to ensure your figures are correct with HMRC otherwise you could end up underpaying the tax you owe (or overpay!) and receive a scary brown letter informing you of providing incorrect information.