Understanding the Taxation of Group Medical Insurance in 2024

At Ascend Health, we know that group health insurance is a valued benefit for employees, but its taxation as a Benefit in Kind (BIK) can sometimes cause confusion. In the UK, when an employer provides private health insurance to their staff, the value of that insurance is taxable, meaning employees pay tax on the benefit as if it were part of their salary.

How Does Taxation Work?

Employers must report the cost of the insurance to HMRC via P11D forms, and employees are taxed based on their income tax band. For example, if the cost of the group health insurance policy is £500, a basic rate taxpayer (20%) would pay £100, and a higher rate taxpayer (40%) would pay £200 in tax. Employees should be aware that the tax is not deducted from their salary directly but will adjust their tax code, meaning they pay the extra tax via PAYE.

This type of taxation might seem like a downside, but for many employees, the benefits far outweigh the additional costs. According to the CIPD 2023 Employee Benefits Survey, private health insurance remains one of the most appreciated non-cash benefits, with over 60% of UK employees citing it as a key perk in their overall remuneration package.

Why Offer Group Medical Insurance?

Despite the taxation, group medical insurance continues to be a popular and effective benefit for employee retention. A study by Bupa UK found that 78% of employees are more likely to stay with a company that offers comprehensive health benefits. For employers, this benefit contributes to reduced absenteeism, improved mental health support, and overall staff wellbeing, all of which can lead to increased productivity. Offering group medical insurance also signals that a company is invested in its employees’ long-term health.

Employer Costs

For employers, group health insurance is an allowable business expense, reducing taxable profits and providing some financial relief. However, it’s important to note that employers are still required to pay National Insurance Contributions (NICs) on the value of the benefit. In 2024, these NICs are calculated at 13.8% on the policy’s value, so a £500 health insurance policy would cost the employer an additional £69 in NICs.

The Importance of Transparency

Employees must understand how this tax works to avoid unexpected tax bills. Employers, on the other hand, need to communicate these implications clearly to maintain transparency. Miscommunication can lead to dissatisfaction, with employees feeling blindsided by additional costs. This is particularly important as companies work to meet the Consumer Duty guidelines, ensuring fair treatment of employees in all aspects of the benefits package.

Why Does This Matter?

Understanding the taxation of group medical insurance is vital for both employers and employees. While it might introduce some extra costs, group health insurance remains a powerful tool for attracting and retaining top talent. In 2024, with growing emphasis on mental and physical health, providing comprehensive health benefits is not just a luxury—it’s a necessity. By navigating the tax landscape wisely and communicating the costs transparently, both parties can benefit from the security and peace of mind that group medical insurance provides.

At Ascend Health, we’re here to help you make sense of these tax implications, offering tailored advice for your business. Whether you’re an employer considering group health insurance for your team or an employee looking to understand the full picture, our expertise ensures you’re fully informed at every stage.

For more detailed advice on group medical insurance and how it can benefit your organisation, get in touch with Ascend Health today.  

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Any questions? Please don’t hesitate to contact one of our team.

Oliver.Miller@ascendhealth.co.uk | Telephone: 01245 929129