Tax on Business Health Insurance explained

Business health insurance provide a valuable benefit for your employees, but it can also be tax-efficient for your business. If you run a limited company, the premiums you pay for business health insurance are tax deductible, so you can offset the cost against profits*.

However, understanding the complete tax picture is crucial for both employers and employees. When a company provides private health insurance, it creates specific tax obligations that affect both parties. Businesses may benefit from tax deductions, but this tax advantage isn’t the only reason to provide business health insurance for your employees. Others benefits include:

• Attract and retain employees. Companies that provide business health insurance are often considered employers of choice. And it’s a workplace benefit that employees value. 63% of employees want their employer to do more to support their health1.
• Improved workplace efficiency. Business health insurance can help manage short-term absence. It gives employees access to non-urgent treatments at a time that’s convenient for both employee and employer. Meaning they could also be back to work more quickly following their recovery. 
• Improved staff morale. Employees feel valued and have a greater sense of job satisfaction. Employees with Vitality business health insurance are 13% less likely to report low job satisfaction¹.

As premiums are tax deductible for limited companies, the cover you provide to your employees and directors is classed as a taxable benefit in kind. This tax on health insurance means employees and directors pay income tax at their marginal rate on the cost of the premiums. This comprehensive guide explains everything you need to know about health insurance taxation in the UK, including P11D reporting requirements and benefit in kind calculations.

What is business health insurance? 

Business health insurance, also known as corporate or group health insurance, is a type of private medical insurance arranged by an employer. It provides private healthcare benefits to employees, offering a valuable perk that can help with staff retention and recruitment.
This type of insurance is available for:

• Small businesses (typically 1–249 employees)
• Large corporations (250+ employees)
• Self-employed individuals, sole traders, and freelancers

Business health insurance plans usually cover seeing a private GP, physiotherapist, or mental health professional. It also covers in-patient and day-patient treatment costs like hospital fees, consultant fees, diagnostic tests and scans (MRI, CT, PET), as well as surgical procedures and cancer treatments.

One of the main benefits of business health insurance is that it gives you and your employees a quick access to private healthcare, latest drugs and treatments. It also helps pay for early diagnosis and treatment of acute conditions.

Health insurance plans like Vitality’s also offer Employee Assistance Programme. This additional option can enhance the cover available to employees. And health insurance isn’t only for when your employees get sick. Vitality group health insurance offers access to wellbeing programs. These encourage employees to get healthy and stay healthy.

How does private health insurance affect tax?

Business health insurance that’s paid by the employer has tax implications for both the employer and the employee. 

As an employer, the premiums you pay for the business health insurance can be offset against your limited company profits*. Buying business health insurance is classed as a business expense and is therefore eligible for tax relief.

Personal health insurance plans do not qualify for this tax relief.

The premiums must be paid from a company bank account to make them eligible for this tax advantage. 

Employees who receive private health insurance through your business will also be affected. HMRC considers private healthcare to be a taxable benefit in kind. This means it is a benefit with a monetary value provided by an employer, on which the employee must pay tax and the employer national insurance.

Is private health insurance tax deductible in the UK?

Private health insurance is only tax deductible if it is set up as a business health insurance policy. Not a personal health insurance policy. 

Limited companies can offset the costs of any premiums against their taxable profits for corporation tax. The company will need to pay Class 1A employers’ National Insurance contributions on these premiums.

Sole traders can also set up a business health insurance policy just for themselves. However, the premium may not be tax deductible.  You’ll need to consult your accountant or tax adviser for specific guidance. 

As an employee or director of the limited company, you’ll still be subject to paying income tax on the cost of your premium. So, if you don't employ anyone other than yourself, you may want to weigh up whether it’s more cost-effective to take out a business plan or a personal plan. An accountant or tax adviser will be able to help you.

What is a benefit in kind?

A benefit in kind is a benefit an employee receives from an employer that isn’t part of their salary. It can also be called a ‘perk’ and is usually a non-cash benefit. Such as a company car, private health insurance and accommodation provided by your employer. 

How does benefit in kind work?

Benefits in kind have a value in addition to your employee’s salary, so they are taxable. 

As the employer you have a duty to report benefits in kind to HMRC. The tax paid on benefits in kind depends on what benefits your employees receive and how much they’re worth. Business health insurance is considered a benefit in kind, so will need to reported to HMRC.

You’ll need to work out the taxable value of the benefit, by employee, and let HMRC know. You can do this through your payroll (called payrolling benefits) or by completing forms P11D and P11Db at the end of each tax year. 

If using forms P11D, you’ll need to complete one for each employee who has received a benefit in kind and provide copies to both the employees and HMRC. The tax owed by the employee is then either accounted for by the employee through their self-assessment tax return or paid through PAYE via a tax code adjustment by HMRC.  You will also need to submit a form P11Db to HMRC and pay over the employers National Insurance Contributions.

If you report benefits in kind via your payroll, P11Ds and a P11Db do not need to be submitted.

What is a P11D form?

A P11D is a tax form that an employer completes for each employee that receives a benefit in kind. On it the employer lists the cost of all the benefits in kind that need to be reported to HMRC. 

These include benefits such as private health insurance and company cars. Also, some childcare costs and employee accommodation. Expenses and employee benefits list is available on the gov.uk website. 

When the P11D form has been submitted to HMRC, it helps them work out how much tax each employee needs to pay. 

HMRC are working towards making it mandatory for employers to report and pay the tax on benefits in kind through the payroll system. This will make it easier and quicker for employers to report back. And it means employees won't need to wait to get a new tax code before paying the extra tax they owe or are due. The scheme was due to be rolled out in April 2026 but has been postponed until the following year. An update and guidance was published by HMRC in November 2025.

Who pays P11D tax, the employer or employee?

The person who receives the benefit in kind will pay the income tax due. This is usually the employee or a director of a limited company. 

The employer is liable for employer national insurance contributions (Class 1A) on the value of benefits in kind provided.

What is a P11D(b) form?

A P11D(b) summarises the individual P11D forms that employer completed for their employees, detailing the amount of national insurance owed.

More information

Tax is a complex subject and can be very confusing. If you’re in any doubt about taxation around benefits in kind please speak to an accountant or tax adviser. HMRC also provide comprehensive information on the gov.uk website. We've included some links here to more information that you may find useful. 

• Paying tax on company benefits. An overview of company benefits you’ll be taxed on as an employee. Plus, which benefits are tax-free.
• An A-Z list of expenses and benefits. You can check how each benefit is taxed before completing a P11D. Useful for employees as well to see how they will be taxed on their benefits in kind.
• Employment Income Manual. This details technical information about employment benefits. It includes how the rules apply to certain benefits. 
• How to complete a P11D. Explains in detail how to complete a P11D and P11Db. Includes when you must complete the form and what to include in each section.

Key takeaways

• Business health insurance is a valuable employee benefit and one that’s appreciated by employees. It can also be tax efficient, as the premiums you pay for business health insurance are tax deductible for limited companies. 
• It provides employees with quick and easy access to private healthcare and covers a wide range of treatments. Such as seeing a private GP, physiotherapist or mental health professional. Plus, quick diagnosis and treatment, cancer care, stays in private hospitals, and access to specialist drugs. 
• Business health insurance is also known as private medical insurance (PMI) or company health insurance. And it’s available to all sizes of company, from sole traders up to corporates. 
• Premiums must be paid from a company bank account to make them eligible for the tax relief. 
• Employees who receive private health insurance through your business will be taxed on this benefit. HMRC considers private healthcare to be a benefit in kind. This means that the employee pays income tax on their premium. 
• A benefit in kind is a benefit an employee receives from an employer that isn’t part of their salary. It can also be called a ‘perk’ and is usually a non-cash benefit.
• Such as a company car, private health insurance and accommodation provided by your employer. Because these benefits have a value in addition to a salary, they are taxable. 
• As an employer you have a duty to report benefits in kind to HMRC. The tax paid on benefits in kind depends on what benefits your employees receive and how much they’re worth. You’ll need to work out the value of the benefit for each employee and report it to HMRC. You can do this through your payroll or by completing a P11Db at the end of each tax year.
• If you’re thinking about taking out cover for you and your employees, take a look at our small business health insurance. Contact our team on 0330 678 3325 if you have any queries.

Tax and business health insurance FAQs

What is classified as a benefit in kind?

Benefits such as private health insurance and company cars are benefits in kind. A full list is available on the gov.uk website.

How much tax do employees and directors pay on benefits in kind?

This depends on what rate of tax you pay on your income and the value of benefit you receive. With business health insurance you’ll pay 20% tax as a basic rate taxpayer, 40% tax as a higher rate taxpayer and 45% tax as an additional tax taxpayer**. 
So, if your health insurance premium is £400 per year, as a 20% taxpayer you’ll pay £80 tax. As a 40% taxpayer you’ll pay £160 in tax. 

What is the difference between P11D and P11Db?

A P11D is an annual form that an employer completes to report benefits and expenses provided to employees or directors that aren’t included in their wages, such as company cars or private medical insurance.  It is submitted to HMRC and a copy provided to each relevant employee or director.  It helps HMRC work out how much tax each employee needs to pay. 
A P11Db is an annual form an employer completes and submits to HMRC, to declare the total amount of Class 1A National Insurance due on the benefits reported in the P11D forms.

* Note that business health insurance may not be tax deductible for a sole trader/self-employed person.  Please consult your accountant for specific advice.
** It is possible for the value of benefits in kind to push your marginal tax rate up, please contact your accountant for specific advice.
Source:
¹ 10 years of Britain’s Healthiest workplace, Vitality