Is a question I am asked fairly regularly, and my answer is that you can, but generally for tax reasons I wouldn’t recommend it.
By Chris Davies
Admittedly health insurance contributions will be a corporation tax deductible expense for the company saving tax at 19%, 25% or 26.5%, but depending on their own income the individual will pay personal tax on the benefit in kind at 20%, 40% or 45%.
But the real kicker that gets overlooked is the class 1a NIC that the company has to pay on the benefit at 13.8%. Added to that, if a benefit in kind needs reporting then most likely you will need to pay someone to produce that form.
I have reproduced below a table of calculations using an annual contribution of £1,000 various tax rates.
| Corporation tax rate | 19% | 19% | 25% | 25% | |||
| Income tax rate | 20% | 40% | 20% | 40% | |||
| Cost of P11db preparation | £125 | £125 | £125 | £125 | |||
If premiums are paid by the company | £ | £ | £ | £ | |||
| Cost of health insurance | 1000 | 1000 | 1000 | 1000 | |||
| P11d | A | 125 | 125 | 125 | 125 | ||
| Employers NIC at 13.8% | B | 138 | 138 | 138 | 138 | ||
| 1263 | 1263 | 1263 | 1263 | ||||
| Corporation tax relief | C | 240 | 240 | 316 | 316 | ||
| Personal tax liability of individualon benefit in kind | D | 200 | 400 | 200 | 400 | ||
| TOTAL TAX, NI P11Db costs A+B-C+D | 223 | 423 | 147 | 347 | |||
If premiums are paid by the individual | |||||||
| Dividend tax on dividend drawn to pay premium | 88 | 338 | 88 | 338 | |||
Saving if paid by the individual | 136 | 86 | 60 | 10 | |||
So in conclusion, in this example in all cases it is more tax efficient for the individual to pay for the health insurance rather than the company, and this is particularly evident where the company’s profits and individuals income is on the lower end of the spectrum.
Of course tax rates can and do change and its important to keep the calculations under review. A change in Government may see these calculations turned on their head.
