The logic of the new tax-free spend of £500 on treatment recommended by the forthcoming Health and Work Service (HWS) is that it encourages employers to get sick employees back to work more quickly, so extending the relief to all employer-provided private medical insurance (PMI), up to a reasonable value, must seem equally sensible. It should, arguably, have the same effect.
However, ministers have to look at the Exchequer cost and likely behavioural impacts of every new policy. The HWS referral requirement will keep the cost of the new £500 occupational health relief within bounds.
A blanket relief for employer PMI is inconceivable: it would cost too much. And a new relief could reasonably be expected to spawn a new industry in tax-free PMI funded by salary sacrifice.
It could be fundamentally the same as employer-supported childcare: tax and national insurance contribution (NIC) free within limits, provided it is on offer to the whole workforce.
But look what is happening with childcare. The £55-a-week policy, because of salary sacrifice, is costing the Exchequer so much that tax-free childcare is going to replace it in 2015.
Tax-free childcare is more generous, at a maximum of £2,000 per child (clever politics), but employers will not be able to fund it using salary sacrifice arrangements. When pay reverts to pre-sacrifice levels for those parents who switch, the extra tax and NIC take for the Exchequer might just about fund the new scheme.
So, a new tax relief for employer-provided PMI would, arguably, be good for UK plc, improving productivity by getting people back to work more quickly (or even merely cutting the time they sit waiting for doctors’ appointments). But would taxpayers whose employers do not offer a scheme be prepared to foot the bill?
Employers already get tax relief for premiums. Now we’re back to politics.
David Heaton is a tax partner at Baker Tilly
