Most healthcare is taxed as a benefit-in-kind. But, in some circumstances, employers aren’t liable, says Rachel Gordon
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Most healthcare is taxed as a benefit-in-kind. But, in some circumstances, such as occupational health and healthcare benefits that are deemed necessary for health and safety purposes, employers are not liable for tax.
New healthcare products are being launched which are more tax efficient for organisations.
An employer should always take professional advice and discuss its situation with its local tax office before applying for any dispensation.
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Deciphering rules surrounding tax and healthcare could save employers money. It’s a commonly-held view that private medical insurance (PMI) and healthcare cash plans are taxable under the Inland Revenue’s P11D requirements but there are some exemptions.
This means it’s possible to avoid some P11D charges with the right type of plan because some aspects of healthcare are, in fact, tax free. This could include, for example, health screening, a stress helpline or paying privately to treat some workplace-related injuries and illnesses. Firstly, it’s essential to understand the rules. Most healthcare plans are treated the same way as other so-called benefits-in-kind such as company cars, which are taxed through the P11D process.
However, the Inland Revenue states that: "If an employer meets the cost of medical treatment provided for an employee, a tax charge will normally arise. But, if the employee’s injury or illness is a risk to their occupation or is due to the nature of their work and is not a risk common to everybody, there may be no chargeable benefit if the treatment is intended to return the employee to the state of health enjoyed before the injury or illness."
This means healthcare provided purely to cover an employee against work-related injury or illness, which does not cover family members, should not result in a charge to the employer. The problem is that most employees with PMI want the security of knowing they are covered against all eligible conditions, including those which are non work-related and with the option of covering family members.
So in most cases, employers are taxed on healthcare. Dudley Lusted, director of corporate healthcare at Axa PPP Healthcare, says: "The Inland Revenue makes around £800 million from corporate healthcare. It is not going to grant an exemption unless it is sure a plan is solely aimed at work-related problems." Axa PPP Healthcare provides a plan, Back to Health, which may be used for workplace-related conditions and is aimed at companies where 50 or more employees are covered, but Lusted emphasises that guidance should be taken.
Paul Roberts a consultant with healthcare specialists IHC, says he is aware of a scheme set up by Centrica when it owned assistance company the AA, which met the P11D dispensation criteria. "This was aimed at getting the roadside assistance staff back to work if they injured themselves." Healthcare cash plan provider HSA is about to launch a hybrid plan which will combine occupational benefits such as eye testing and an employee assistance programmes, with traditional diagnosis and cash plan benefits.
Premiums start at £5-a-month and only half of this is subject to tax. John Dean, sales and distribution director at HSA, says: "Development of occupational healthcare schemes looks likely to progress quickly in the UK and we’re focusing on how these can be tax efficient."
Even tax experts say that the rules surrounding P11D are hugely complicated. So, before setting up a plan which might offer tax exemptions, an employer should speak to a specialist accountant or consultant. It should also run any new schemes by its local tax offices.