Tax on business health insurance explained

Business health insurance provides 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 generally tax deductible, so you can offset the cost against profits*. Tax treatment depends on individual circumstances, so professional tax advice may be required.

But there’s more to the tax picture. When your company provides private health cover, it creates obligations for you and for your employees. Tax relief isn’t the only reason to offer it, though. 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.
• Managing short-term sickness absence. 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.

Premiums are generally tax deductible for limited trading companies, however employer-funded private medical cover will generally give rise to a taxable benefit for employees and directors. 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, the latest drugs and treatments. It also helps pay for early diagnosis and treatment of acute conditions.

Health insurance plans like Vitality’s also offer an 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 programmes. 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. 

Your company

Premiums paid by a trading company for employee or director health cover will generally be deductible in calculating taxable profits. Two conditions normally apply. The cost forms part of the individual’s remuneration package. And it is incurred wholly and exclusively for the purposes of the trade.

Plans your employees arrange themselves

Your company might also pay for a plan an employee or director arranged personally. Corporation Tax relief follows the normal rules for staff costs, as above.

National Insurance works differently, though. It depends on who is contractually liable for the premium.

• Your company holds the plan. The cover is a benefit in kind. You pay Class 1A National Insurance once a year.
• Your employee holds the plan and you pay the insurer. You’re settling their personal debt. So Class 1 National Insurance is due through payroll, from you and from them.
• Your employee pays and you refund them. The refund counts as earnings. PAYE tax and Class 1 National Insurance apply through payroll.

In each case you’ll still need to report the amount for Income Tax under the normal benefit reporting rules. For example, on a P11D where the benefit hasn’t been payrolled.

Your employees

Employees who receive private health insurance through your business will also be affected. HMRC considers private healthcare to be a taxable benefit in kind. Where the employer arranges the insurance, the employee will normally pay Income Tax on the taxable value of the benefit and the employer will generally pay Class 1A National Insurance contributions.

Is private health insurance tax deductible in the UK?

For a trading limited company, generally yes. The conditions are set out above.

Sole traders can set up a business health insurance plan just for themselves. However, the premium is not normally deductible, because the cost isn’t incurred wholly and exclusively for the purposes of the trade. Speak to your accountant or tax adviser about your own position.

As an employee or director of a limited company, you’ll pay Income Tax on the taxable value of your cover. That includes any cover provided for your family. So, if you don’t employ anyone other than yourself, it’s worth weighing up a business plan against a personal one. An accountant or tax adviser can help.

What if employees fund their own cover?

Some employers offer health cover through a flexible benefits scheme. If an employee gives up salary to fund it, special rules apply. The taxable value is broadly the higher of the salary given up or the normal benefit value.

If they pay from their net salary instead, the treatment is different. Speak to your tax adviser if you offer cover this way.

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. Examples include a company car, private health insurance and accommodation provided by your employer. 

How does benefit in kind work?

Many benefits in kind are taxable, because they have a value in addition to your employee’s salary. Some are tax-free where certain conditions are met. Employer paid health cover is normally taxable.

As the employer you have a duty to report benefits in kind to HMRC. The tax due depends on what benefits your employees receive and what they’re worth.

You’ll need to work out the taxable value of the benefit, by employee, and tell HMRC. You can do this through your payroll (called payrolling benefits) or by completing forms P11D and P11Db. Where benefits are validly payrolled, a separate P11D is generally not required for those benefits.

Under the current rules, employers must submit a form P11D(b) to report any Class 1A National Insurance liability, including on benefits you’ve payrolled. This is changing from April 2027, see below.

If using forms P11D, you’ll need to complete one for each employee who has received a benefit in kind. Give copies to your employees and HMRC. HMRC will usually collect the employee’s tax through PAYE, by adjusting their tax code. Where the employee completes a Self-Assessment return, the benefit must be reflected there too.

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 reporting to HMRC. 

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

Once the P11D form is submitted, it helps HMRC work out how much tax each employee needs to pay. 

Payrolling is becoming mandatory

HMRC are working towards making it mandatory for employers to report and pay the tax on benefits in kind through payroll. This will mean employees will generally pay tax on benefits in real time. Mandatory payrolling was originally due to begin in April 2026 but was deferred. HMRC has subsequently announced a phased introduction from 6 April 2027, with employer-provided medical benefits such as private medical insurance included in the first phase of mandatory payrolling. Check HMRC’s latest guidance before you change your process.

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 generally liable for Class 1A National Insurance contributions on benefits in kind provided. Different National Insurance rules may apply where the employer settles an employee's personal liability, as set out above.

What is a P11D(b) form?

P11D(b) is the employer’s annual declaration of the total Class 1A National Insurance contributions due on taxable benefits provided to employees and directors. It is also required where benefits have been taxed through payroll and Class 1A National Insurance remains payable.

More information

Tax is a complex subject. 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 benefit employees value. It can also be tax-efficient, as the premiums are generally tax deductible for trading 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. 
• 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 they pay Income Tax on the taxable value of their cover, including any cover for family. 
• A benefit in kind is something 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.
• Many benefits in kind are taxable, because they have a value on top of salary. Some are tax-free where certain conditions are met.
• As an employer you have a duty to report benefits in kind to HMRC. Work out the taxable value for each employee and report it. You can do this through your payroll or on forms P11D. Under the current rules you also complete a P11D(b) 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?

It depends on what rate of tax the individual pays on their income and the value of benefit they receive. Based on the Income Tax rates for the 2026/27 tax year in England, Wales and Northern Ireland, they'll pay 20% tax as a basic rate taxpayer, 40% tax as a higher rate taxpayer and 45% tax as an additional-rate taxpayer**. 

So, if the taxable value of their cover is £400 per year, a 20% taxpayer pays £80 tax. A 40% taxpayer pays £160 in tax. 

Different Income Tax rates and bands apply to Scottish taxpayers.

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 person needs to pay. 

A P11D(b) is an annual form an employer completes and submits to HMRC to declare the total amount of Class 1A National Insurance due on taxable benefits provided to employees and directors.

Tax rules change. This page is correct at 24 Sept 2026. Check HMRC’s latest guidance for the tax year you’re reporting.

* Note that business health insurance may not be tax deductible for a sole trader/self-employed person. The tax treatment depends on the particular circumstances, and professional advice should be sought where required.

** The value of benefits in kind can push your marginal tax rate up. Please contact your accountant for specific advice.

Source:
¹ 10 years of Britain’s Healthiest workplace, Vitality, 2024