Private medical and dental insurance

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Private medical and dental insurance
  • How to calculate the cash equivalent
  • Exempt benefits

Private medical / dental insurance or treatment is a very common benefit in kind. However, there is no specific legislation covering this benefit. The basis of charge to tax and reporting follows the main principles of the taxation of expenses and depends on who arranged / contracted the insurance or treatment and how it was paid. There is a good summary of the rules in EIM01550.

To be taxable on the employee or director, the benefit must have been provided by the employer ‘by reason of employment’. A benefit provided to a member of the employee’s family is chargeable on the employee (unless the family member is also an employee). The same applies to directors. See the Employment income guidance note.

In September 2010, HMRC issued the Expenses and benefits from employment toolkit  which is a guide for employers and their advisers on the risks associated with the end of year forms P11D and should help avoid common reporting errors. The toolkit is updated annually.

How to calculate the cash equivalent
Employer makes the arrangements and pays the treatment provider or insurer

The employer contracts with the medical provider for insurance / treatment to be provided to the employee / director (ie the policy is in the name of the employer and the beneficiary is the employee) and pays the medical provider direct. This can be summarised in the following diagram.

The employee / director had no liability to pay for the insurance or treatment since he did not contract with the third party. The money is never paid to the employee and therefore the provision of the service by the third party is neither earnings nor expenses. In these circumstances, the provision of the medical treatment or insurance is a benefit in kind assessable under the residual liability to charge rules in ITEPA

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