Business doctor: ‘Free’ healthcare comes at a cost
GM writes: My wife and I have private medical insurance through my company, where we are directors. I’m thinking of extending this to all employees to reward them for their service, as I know some are keen to receive health insurance. How much would it cost my company and staff?
If you provide a benefit in kind to staff, or fellow directors, earning more than £8,500, the company will incur a national insurance charge of 13.8% on top of the cost of the benefit, writes Jon Dawson, partner at Kingston Smith LLP.
In addition, those receiving the benefit will have to pay tax on the cost of the insurance provided. This is collected by adjusting their tax codes, which ensures the correct tax-free personal allowance and tax rates are applied to the payroll.
HM Revenue & Customs adjusts tax codes for benefits provided to staff on receipt of a P11D return, which each employer must prepare and file by July 6, following the end of the tax year.
You may find that some employees do not wish to join the company’s private medical insurance policy as it will result in a reduction in their net earnings for a service they may not use. Also, you may decide to make the benefit available only to certain staff, perhaps according to their length of service or grade.
As an alternative, you could provide annual medical check-ups and eye tests, which would be free from additional tax and national insurance.
Providing a benefit can be a good motivator for employees, but some may prefer to receive an equivalent cash bonus. Consult your staff before going ahead.