Alyssa Lane
Private medical insurance is a benefit in kind (BIK) that is taxable in the UK. BIKs are non-cash benefits that an employee receives from their employer in addition to their salary or wages. To calculate the tax owed on private medical insurance, the cash equivalent value of the benefit must first be calculated, and then the employee's income tax rate is applied. Employers must also pay Class 1A National Insurance contributions (NICs) on the value of the benefit, unless the benefit is exempt from NICs. P11D forms are used to report BIKs to HMRC and must be submitted by 6 July following the end of the tax year.
| Characteristics | Values |
|---|---|
| What is P11D? | A document used in the UK to report benefits in kind (BIK) provided to employees and Directors. |
| What are Benefits in Kind? | Non-cash benefits that an employee receives from their employer in addition to their salary or wages. |
| Examples of BIK | Private medical insurance, company cars, interest-free loans, company-provided accommodation, gym memberships, and subsidized or free travel. |
| Who fills out the P11D form? | Employers fill out the P11D form and submit it to HMRC. |
| When is the P11D form due? | The P11D form must be submitted by 6 July following the end of the tax year. |
| What should the P11D form include? | The name and National Insurance number of the employee, as well as the type and value of the benefit in kind. |
| What taxes are associated with BIK? | Employees pay income tax on BIK, and employers pay National Insurance contributions (NICs) and Class 1A NICs on the value of the benefit. |
| How to calculate taxes on BIK? | Calculate the cash equivalent value of the BIK and then apply the employee's income tax rate. Employers also pay NICs on the value of the benefit. |
| Are there any tax deductions for health insurance? | While employees are taxed on receiving company health insurance, the cost is typically lower than private cover. Employers can also claim insurance as a tax-deductible expense and benefit from tax breaks on those expenses. |
| How to report BIK? | The most common method is through the payroll system, either as a separate amount or as part of the employee's gross pay. BIK can also be reported using the Employer Payment Summary (EPS) provided by HMRC. |
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What You'll Learn
Benefits in kind (BIK)
In most cases, BIK are subject to income tax and employer national insurance contributions (NICs) in a similar way to cash earnings, except that employees do not pay NICs on BIK. Certain BIK are exempt from NICs, and HMRC provides specific guidance on tax treatment. To calculate the taxes due on a BIK, the cash equivalent value of the benefit must first be established, after which the employee's income tax rate is applied. Employers must also pay NICs on top of this.
There are several ways to report BIK to HMRC. Typically, this is done through the payroll system, either as a separate amount or as part of the employee's gross pay. BIK can also be reported using the Employer Payment Summary (EPS), an online service provided by HMRC. When reporting through the payroll system, it is important to use the correct tax codes and deduct the appropriate amount of tax and NICs from the employee's pay.
The P11D form, which must be submitted to HMRC by 6 July following the end of the tax year, should include the employee's name and National Insurance number, as well as the type and value of the BIK. The employer must pay Class 1A NICs on the value of the BIK, unless the benefit is exempt.
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Calculating taxable value
To calculate the taxable value of benefits in kind (BIK), you must first determine the cash equivalent value of the BIK. Once you have this figure, you can apply the employee's income tax rate to calculate how much tax they owe on this benefit.
BIK refers to non-cash benefits that an employee receives from their employer in addition to their salary or wages. Some common examples of BIKs include company cars, private medical insurance, low-interest loans, company-provided accommodation, and gym memberships.
The P11D form must include the name and National Insurance number of the employee, as well as the type and value of the BIK. Employers are also required to pay Class 1A NICs on the value of the BIK, unless the benefit is exempt from NICs.
There are several ways to report BIK to HMRC. The most common method is through the payroll system, either as a separate amount or as part of the employee's gross pay. You can also report BIK using the Employer Payment Summary (EPS), which is an online service provided by HMRC.
It is important to note that employees pay income tax at marginal rates, which vary depending on their annual income. For example, an employee earning below £50,000 annually will typically pay 20% income tax, while those earning above £70,000 will pay 40%. On the other hand, employers pay National Insurance contributions (NICs) at a flat rate of 13.8%.
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Income tax
In the UK, a P11D form is used to report benefits in kind (BIK) provided to employees and directors. These are non-cash benefits that are received but not included in the salary. Private medical insurance is one such benefit.
At the end of each tax year, employers must complete a P11D form for every employee or director who has been provided with benefits or expenses in addition to their salary. This does not include routine business expenses and benefits like travel and company car fuel. The P11D form must include the name and National Insurance number of the employee, as well as the type and value of the benefit in kind. The value of the benefit is usually the cash equivalent of the benefit.
If an employer pays for an employee's or director's private medical insurance as part of their benefits package, HMRC regards it as a 'benefit in kind'. The cost of this benefit is then taxed as income tax. The employer must declare the cost of the premium to HMRC on a P11D form, which is a statement of the employee's or director's untaxed benefits. The tax due is then collected by amending the employee's or director's tax code from the start of the next tax year (6th of April), reducing their take-home pay.
Employees or directors who pay for their own private medical insurance from their salary do not need to include it on the P11D form. However, if they contribute to the cost of their insurance, they can deduct the amount of their contribution from the total premium and then work out the benefit in kind value. This pro-rata value of the benefit in kind, i.e., the cost for the time they were an employee, should be reported on the P11D form.
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National Insurance contributions (NICs)
To calculate the P11D for medical insurance, it is important to understand National Insurance contributions (NICs). NICs are a direct tax, and both employees and employers pay NICs once their earnings reach a certain threshold. Self-employed people also pay NICs. These thresholds are assessed by pay period (usually weekly or monthly) rather than over the entire tax year. This means that NICs are charged separately for each pay period and for each different job, so two people with the same annual income but structured differently may pay different amounts in NICs. It is important to note that NICs are only charged on earnings from employment and profits from self-employment, while income tax is applicable to other types of income, such as investment income.
Employees pay mandatory National Insurance if they are 16 or over and either earn more than £242 per week from one job or are self-employed and make a profit of more than £12,570 a year. Even if you do not meet these criteria, you may still qualify for certain benefits and the State Pension. You can also pay voluntary contributions to avoid gaps in your National Insurance contributions.
Employers must also pay NICs on their employees' earnings, specifically on the expenses and benefits they give to their employees, such as private medical insurance. From 6 April 2025 to 5 April 2026, the rate for Class 1A and 1B National Insurance on expenses and benefits is 15%. Employers must also pay Class 1A on some other lump-sum payments, such as redundancy payments.
Benefits in kind (BIK) refer to non-cash benefits that an employee receives from their employer in addition to their salary or wages. Common examples include company cars, private medical insurance, low-interest loans, company-provided accommodation, and gym memberships. BIKs are subject to income tax and employer NICs, and employers must report the value of the benefit to HMRC. The most common method is through the payroll system, and employers must deduct the appropriate amount of tax and NICs from the employee's pay.
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Reporting to HMRC
As an employer, you must report taxable expenses or benefits you provide to your employees to HM Revenue and Customs (HMRC). This can be done through your payroll or online at the end of the tax year. Each expense or benefit is calculated differently.
P11D forms are submitted to HMRC each tax year to report the value of reportable benefits provided to employees and directors, where the benefits are not covered by a formal payrolling arrangement with HMRC, or are not dealt with under a PAYE Settlement Agreement. The deadline for submitting P11Ds is 6 July following the tax year, and a copy must be given to the employee by the same date.
If you are reporting benefits in kind (BIK) through the payroll system, you will need to ensure that you are using the correct tax codes and that you are deducting the appropriate amount of tax and NICs from the employee's pay. You can also report BIK using the Employer Payment Summary (EPS), which is an online service provided by HMRC.
From the 2022/23 reporting year, HMRC will no longer accept paper forms P11D and P11D(b). To payroll benefits from 2023/24, registration must be completed on HMRC's gateway before 6 April 2023.
Employers need to report the value of the benefit to HMRC, pay Class 1A employer NICs and deduct the appropriate amount of income tax from the employee's pay.
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Frequently asked questions
A P11D form is used in the UK to report benefits in kind (BIK) provided to employees and directors. These benefits are non-cash perks that are received but not included in their salary.
Common examples of benefits in kind include company cars, private medical insurance, low-interest loans, company-provided accommodation, and gym memberships.
To calculate the tax on private medical insurance provided by an employer, first determine the cash equivalent value of the benefit. Then, apply the employee's income tax rate. The employer will also need to pay Class 1A National Insurance contributions on the value of the benefit.
