Is health insurance a taxable benefit?

Benefit in kind, in plain English

When an employer pays for health insurance for an employee, HMRC treats the cover as a benefit in kind, sometimes shortened to BIK. The cash value of the premium counts as part of the employee's total remuneration, so it is taxed.

What the employee pays

The employee pays income tax on the cash equivalent of the premium, at their marginal rate. So a higher rate taxpayer with a premium of £600 per year would pay £240 of additional income tax on that benefit.

Importantly, the employee is taxed on the premium, not on the value of any treatment they receive. So a £600 premium that produces a £20,000 surgery claim still only attracts tax on the £600.

What the employer pays

• Class 1A National Insurance. The employer pays Class 1A NI on the cash equivalent of the cover, at the prevailing rate. It is reported on form P11D(b) and paid annually.
• Premiums. These are a tax-deductible business expense in most cases, reducing corporation tax.
• Insurance Premium Tax. IPT applies to the premium itself, currently at 12 percent for standard rate.

How it is reported

Two routes:

• P11D. The traditional route, reported once a year after the tax year ends.
• Payrolling. The benefit is reported via payroll in real time, so the employee pays the tax monthly through PAYE.

From April 2026 onwards, payrolling most benefits in kind is set to become mandatory. Confirm the current position with your accountant.

Worked example

A 35-employee SME with an average premium of £80 per employee per month:

• Annual premium per employee: £960.
• Annual employee income tax cost, 40 percent rate: £384 per employee.
• Annual employer Class 1A NI cost, at illustrative 13.8 percent: about £133 per employee.
• Annual employer corporation tax saving, at 25 percent: about £240 per employee.

So the net employer cost in this example is roughly £853 per employee, and the net cost to a higher rate employee is £384 of additional personal tax. Many employers choose to absorb the small extra NI cost themselves.

Cash plan comparison

A healthcare cash plan is also a benefit in kind, but premiums are usually much lower, so the tax cost is much lower too. Many employers pair a cash plan as a universal benefit with PMI for senior roles. See our health insurance vs cash plan guide for a fuller comparison.

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General information, not tax advice

This is general information for UK employers researching health cover. It is not personal tax advice. Tax treatment depends on your circumstances and may change. Please confirm the position for your business with a qualified accountant.