Kingston Smith
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Business Doctor: Medical cover is not always welcome

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HS writes: I introduced private medical cover at my company last year for certain individuals who have been working for me for a few years. I am now completing the end-of-year form P11D to report the benefits in kind. How will this affect my company and employees?

For the year to April 5, 2016, the company will incur a national insurance charge of 13.8% in addition to the cost of the benefit, writes Jon Dawson, partner at Kingston Smith LLP. This applies to any employees who earn more than £8,500, or directors, in the tax year you are currently reporting. For the year from April 6, 2016, however, the £8,500 threshold is removed.

The cost of the benefit and the additional national insurance charge are tax deductible for the company. Any member of the team receiving the benefit will incur a personal tax charge on the value of it. This is collected through the payroll and is achieved by adjusting the individual’s tax code. Their tax-free personal allowance is reduced by the value of the benefit. In practical terms, they will pay tax on more of their income.

HM Revenue & Customs issues tax codes based on the information it holds, so there will be no change until you file a P11D and report the benefit. If the cost of the benefit varies, HMRC will not know until the next P11D is submitted.

An alternative approach could be to offer a flexible benefits package so your team can pick and choose what suits them best. This would avoid having unhappy staff who might not value private medical cover and just see a higher personal tax charge.

A number of specialist providers can take away some of the hassle of managing the benefits process. The P11D filing deadline is July 6.