This document discusses the taxation implications of company-paid healthcare plans for large employers in the UK. It outlines various taxes that may apply such as Insurance Premium Tax, National Insurance Contributions, Income Tax, and Corporation Tax. It provides examples of how these taxes are calculated for different types of healthcare plans including health cash plans, private medical insurance, cost plus insurance plans, healthcare trusts, and scheme agreements. The key information provided relates to the different tax rates and calculations that employers and employees should consider for company-paid healthcare.

1. Taxation implications for
company paid healthcare
for large employers
ELF FUNDED HEALT
H PLA URANCE
NS H INS
HEALT
HEALTH CASH P
LANS

2. How Simplyhealth’s products are taxed Different taxes may apply depending on the type of healthcare cover:
The following taxes affect companies who buy healthcare cover for their employees (rates Simplyhealth Health Cash Plan Private Medical Cost Plus Self funded Health
Healthcare Plan Insurance Insurance Plan Plans
quoted are correct as at April 2012):
Option
A low cost health A flexible way for A viable alternative for Health Care Trusts and
Insurance Premium Tax (IPT) benefit that helps companies with 5 to employers providing Scheme Agreements 2
employees with the 5,000 employees, to private healthcare for
IPT is included in insurance contracts and is charged at 6% of the net premium; IPT cannot be cost of their everyday give employees access 400 employees or more: Suitable for large
healthcare to medical advice and combines the security employers with more
reclaimed.
treatment of an insured product than 400 employees
with genuinely flexible on cover, these plans
National Insurance Contributions (NIC) bespoke solutions can be fully tailored
and expert cost to a company’s
Employers are charged Class 1A NIC at 13.8% on the full value of taxable benefits, or Benefits own requirements,
management
in Kind (BIK), provided to their employees. Class 1A NIC will not usually be charged where or included in
Simplyhealth’s
employees’ earnings, including BIK, are less than £8,500 per annum.
Global Trust to
receive excellent
Income Tax health cover with the
benefit of expert cost
Employees receiving company paid healthcare cover will pay tax on the BIK value, which is management
the total cost to the employer less any amounts repaid by the employee. Tax is charged at the
Taxes:
employee’s highest marginal tax rate (i.e. 20%, 40% or 50%1), which is determined by total
Valued Added Tax Does not apply Does not apply Does not apply Applies at 20% on
earnings including benefits. (VAT) policy administration
services
Corporation Tax (CT)
Insurance Premium Included in the Included in the Included in the Does not apply 3
Companies pay Corporation Tax on their profits at a main rate of 24% (small profits rate 20%,
Tax (IPT) premium at 6% premium at 6% premium at 6%
April 2012 – March 2013). The costs of providing employee benefits are allowed as deductions
from profit for CT purposes, and so reduce the amount of CT payable. National Insurance Applies to the total Applies to the total Applies to the total Applies to the total
Contributions (NIC) amount funded by the amount funded by the amount funded by the amount funded by the
employer, at 13.8% employer, at 13.8% employer, at 13.8% employer, at 13.8%
Value Added Tax (VAT)
VAT is charged at 20% on non-insurance Administration Services; many companies are able to Income Tax Applies to the Benefit Applies to the Benefit Applies to the Benefit Applies to the Benefit
reclaim the VAT they pay through their VAT return. in Kind (BIK) value, at in Kind (BIK) value, at in Kind (BIK) value, at in Kind (BIK) value, at
the employee’s usual the employee’s usual the employee’s usual the employee’s usual
rate rate rate rate
1
45% from 6 April 2013
Corporation Tax (CT) Applies to Total Applies to Total Applies to Total Applies to Total
Taxable Profits as Taxable Profits as Taxable Profits as Taxable Profits as
reduced by BIK and reduced by BIK and reduced by BIK and reduced by BIK and
NIC paid by company NIC paid by company NIC paid by company NIC paid by company
at company’s relevant at company’s relevant at company’s relevant at company’s relevant
rate rate rate rate
Benefit in Kind (BIK) Premium paid by Premium paid by Total contract sum Total contract sum
calculated as: employer less amounts employer less amounts (including Stop Loss (including Stop Loss
paid for by employee paid for by employee cover if applicable) cover if applicable)
divided by number of divided by number of
employees covered, employees covered,
apportioned as per apportioned as per
benefit levels granted. benefit levels granted.
The BIK is reduced by The BIK is reduced by
any amounts paid by any amounts paid by
employee employee
Simplyhealth’s Trust and Scheme Agreement arrangements are all fully compliant with Her Majesty’s Revenue & Customs guidance under
2
EIM21772
Trust / Scheme agreements sometimes have Stop Loss Insurance attached, this is a separate insurance policy and not part of the Trust /
3
Scheme agreement itself.

3. Taxation Examples Private Medical Insurance (PMI)
Please consider the following as illustrations only of the overall cost to a company of providing their employees Mr Jones is a manager who earns £45,000 a year and pays tax at 40%. He is provided with a company funded
with a healthcare benefit as a staff benefit, including the potential saving in corporation tax after deducting from private medical insurance scheme that costs his employer £1,060 a year inclusive of IPT. The information below
profit as a business expense. shows the taxation cost and benefit effects for both Mr Jones and his employer.
Amount due Calculated as
Health Cash Plan Cost to Mr Jones
Smith & Sons provide all of their employees with a company paid health cash plan costing £2 per employee per Income Tax (annual amount) £424.00 40% of cost to employer (BIK value)
week, or £104 per year. The information below shows the usual taxation cost and benefit effects for both the
Income Tax – monthly amount £35.33
employer and its employees.
Total cost of providing the Amount due Calculated as Total cost of providing PMI
Health Cash Plan Net premium £1,000.00
Net premium £98.11 Insurance Premium Tax £60.00 6% of net premium
Insurance Premium Tax £5.89 6% of net premium Total premium due to insurer (BIK value) £1,060.00
Total premium due to insurer (Benefit in £104 Cost of Class 1A NIC £146.28 13.8% of cost to employer
Kind value)
Cost to employer before CT saving £1,206.28
Cost of Class 1A NIC £14.35 13.8% of cost to employer
Less: Corporation Tax saved (£289.51) 24% of gross premium plus NIC paid
Cost to employer before CT saving £118.35
Net cost to employer £916.77
Less: Corporation Tax saved (£28.40) 24% of gross premium plus NIC paid
Net cost to employer (per employee) £89.95
Cost to basic rate taxpayer
Income Tax (annual amount) £20.80 20% of BIK value
Income Tax - monthly amount £1.73
Cost to higher rate taxpayer
Income Tax (annual amount) £41.60 40% of BIK value
Income Tax – monthly amount £3.47
Cost to additional rate taxpayer
Income Tax (annual amount) £52.00 50% of BIK value 1
Income Tax – monthly amount £4.33
1
45% from 6 April 2013

4. Cost Plus Insurance Plan Healthcare Trust
The Jones Partnership chose a bespoke cost plus insurance plan to include cover for existing and retired partners Marwell Aeronautical Ltd wanted to provide their employees with their own unique private health cover. They
for benefits agreed with their insurer. They wanted to ensure that the total cost of health cover did not exceed designed their plan to include benefits specifically to cover the particular needs of their workforce. They wanted
£1.5m and so agreed an Aggregate Stop Loss insurance (“ASL”) at 120% of the estimated claims fund. the plan to be their own and decided to use a Healthcare Trust to provide their employees with this cover. The
company decided not to purchase aggregate stop loss cover. The costs and benefits to the company and its
The table below shows the usual taxation cost and benefit effects for the Partners.
employees under the Trust arrangement are as shown below.
Total Plan cost: 200 Partners, 1,000 Expected annual Estimated Total Claims Cost: £1,066,575
Total Plan cost: 500 employees Expected annual Estimated Total Claims Cost: £450,000
employees (estimated figures only, cost: £1,200,000 Aggregate stop loss premium: £17,500 (estimated figures only, these are bespoke cost: £471,500 Admin fee: £21,500
these are bespoke plans and individually calculated as: Admin fee: £48,000 plans and individually underwritten) calculated as:
underwritten) VAT @ 20% on admin fee: £4,300
IPT @ 6%: £67,924
Plan cost per employee £951.60
Plan value per Member £1,000.00
NIC 13.8% 5 £131.32 13.8% of cost to employer
Taxable as income from Partnership / BIK £1,000.00
Less Corporation tax saved 5 (£259.90) 24% of gross premium plus NIC paid
Cost to Partner who is Basic Rate Net cost to employer per employee £823.02
Taxpayer
Income Tax (annual amount) £200.00 20% of cost to Partnership (inc IPT) Benefit in kind – P11D value £951.60
NIC (annual amount) £90.00 9% of cost to Partnership (inc IPT)
Cost to Basic Rate Taxpayer
Total tax payable £290.00
Income Tax (annual amount) £190.32 20% of cost to employer
Cost to Partner who is Higher Rate Income Tax – monthly amount £15.86
Taxpayer
Cost to Higher Rate Taxpayer
Income Tax (annual amount) £400.00 40% of cost to Partnership (inc IPT)
Income Tax (annual amount) £380.64 40% of cost to employer
NIC (annual amount) £20.00 2% of cost to Partnership (inc IPT)
Income Tax – monthly amount £31. 72
Total tax payable £420.00
Cost to Additional Rate Taxpayer
Cost to Partner who is Additional Rate
Taxpayer Income Tax (annual amount) £475.80 50% of cost to employer 4
Income Tax (annual amount) £500.00 50% of cost to Partnership (inc IPT) 4 Income Tax – monthly amount £39.65
NIC (annual amount) £20.00 2% of cost to Partnership (inc IPT) 4
45% from 6 April 2013
5
All tax rates are the normal main rates as at April 2012. The government may announce a change in these rates. P11d liabilities are usually
Total tax payable to purchase £520.00 adjusted in the subsequent year to reflect the difference between the estimated cost of the plan and the actual final cost.
4
45% from 6 April 2013
Amounts paid on behalf of employees of the Partnership are deductible as expenses of the Partnership. For employees of the Partnership
the tax position is the same as in example 1 or 2 above. P11d liabilities are usually adjusted in the subsequent year to reflect the difference
between the estimated cost of the plan and the actual final cost.

5. Scheme Agreement
Valley Cabling wanted a cost-efficient flexible scheme to provide cover for their employees, who have a right to
healthcare benefits included in their employment contracts. They chose a Scheme Agreement with additional
Aggregate Stop Loss cover to limit their maximum risk if claims exceeded 120% of the expected claims cost.
The costs and benefits of this are shown below.
Total Plan cost: 2,000 employees Expected annual Estimated Total Claims Cost: £1,800,000
(estimated figures only, these are bespoke cost: £1,888,550 Aggregate Stop Loss £17,500
plans and individually priced) IPT @ 6% on Stop Loss £1,050
calculated as:
Admin fee: £70,000
VAT @ 20% on admin fee: £14,000
Plan cost per employee £944.28
NIC 13.8% 5 £130.31 13.8% of cost to employer
Less: Corporation Tax saved 5 (£257.90) 24% of gross premium plus NIC paid
Net cost to employer per employee £816.69
Benefit in kind – P11D value £944.28
Cost to Basic Rate Taxpayer
Income Tax (annual amount) £188.86 20% of cost to employer (inc IPT)
Income Tax – monthly amount £15.74
Cost to Higher Rate Taxpayer
Income Tax (annual amount) £377.71 40% of cost to employer (inc IPT)
Income Tax – monthly amount £31.48
Cost to Additional Rate Taxpayer
Income Tax (annual amount) £472.14 50% of cost to employer (inc IPT) 4
Income Tax – monthly amount £39.35
4
45% from 6 April 2013
5
All tax rates are the normal main rates as at April 2012. The government may announce a change in these rates. P11d liabilities are usually
adjusted in the subsequent year to reflect the difference between the estimated cost of the plan and the actual final cost.
This communication is directed at commercial customers only and is not aimed at consumers. Please note
that these examples are for illustrative purposes only. They are not intended to constitute tax advice, but are a
representation of current legal provisions. For specific advice on how this affects your company, you should speak
to your Tax Advisor, or your local HM Revenue and Customs office.
Further information on tax rates and how this affects you can be found at:
www.hmrc.gov.uk
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