Is employer-paid private medical insurance taxed as a benefit in kind?

Full answer

Employer-paid private medical insurance is a common workplace benefit, but unlike your salary, it does not have Income Tax and standard employee National Insurance deducted directly from it -- instead, it is reported and taxed through the Benefit-in-Kind system. **How the taxable value is set** The taxable value of employer-paid PMI is generally the COST to the employer of providing the cover (the premium paid), not any notional retail value -- this cost is reported to HMRC, usually via a P11D form (or through payrolling of benefits, if your employer uses that method) after the end of the tax year. **How it is taxed** The premium amount is added to your taxable income and taxed at your marginal Income Tax rate (20%, 40%, or 45%) exactly as if it were extra salary, though critically it is NOT subject to employee Class 1 National Insurance, unlike actual salary. **Worked example** An employer pays a £900 annual premium for an employee's private medical insurance. This £900 is treated as a taxable benefit. A basic-rate (20%) taxpayer pays an extra £180 in Income Tax as a result (typically via an adjustment to their tax code, so the tax is collected gradually through PAYE rather than as a lump sum); a higher-rate (40%) taxpayer would pay an extra £360. **Effect on your tax code** HMRC typically estimates your PMI benefit for the CURRENT year based on the previous year's P11D and adjusts your tax code accordingly, meaning the tax is usually collected through slightly reduced take-home pay across the year, rather than as a single bill -- if your PMI benefit changes (for example, you are removed from a scheme, or dependants are added), your tax code may need updating. **Class 1A National Insurance on the employer** Separately, employers pay Class 1A National Insurance on the value of the PMI benefit provided, which is a cost to the employer rather than the employee, but explains why some employers offer PMI via salary sacrifice or other structures to manage the combined cost. **Practical tip** Check your P11D (or payrolled benefits statement) each year to confirm the PMI premium value used, and make sure your tax code reflects your current benefits accurately, since an outdated estimate can lead to an unexpected under- or overpayment of tax being corrected later.

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