As the director of a limited company, ensuring that your personal and business finances are kept in the best health is an ongoing priority. 
Given that there are many situations in which a purchase will affect both aspects of your world, there is a huge opportunity to promote financial health simply by choosing the most cost-effective solution. The topic of private medical insurance is undoubtedly one where the decision can have a telling impact. 

Private medical insurance – a suitable tax expense? 

Before considering whether an expense should be put through under the business accounts for tax benefit purposes, it’s imperative that you check the legal situation. Getting into trouble with HMRC through illegitimately filing an item that should not be included in the business accounts is the last thing any director needs – especially when it is a genuine mistake. 
Given that private medical insurance is something that protects the business as well as you on a personal note, it does indeed fall under the umbrella of purchases that can be considered as a tax deductible expense with HMRC. Before paying for it from the limited company though, you must consider the tax implications to confirm whether it’s the right decision. 
To do this successfully, you’ll need to consider many factors. Ultimately, though, your decision between personal account or business account will be determined by finances and practicality. 

Personal versus company accounts: the process 

While the financial and tax implications will naturally have the biggest influence on your decision, the need to consider the process involved should not be ignored. After all, time is money! 
When handling your private medical insurance through personal accounts, the entire process is smooth and requires no additional effort. You will simply take the necessary steps to find the right insurance quote before completing the purchase, and then add this to your personal tax return. 
Conversely, when putting the expense through the company accounts, the insurance premium is considered a benefit of kind. As such, you’ll be required to complete a P11d form while also completing the calculations and process of filling in Class 1a National Insurance details. While the process is hardly the most strenuous that you’ll ever encounter in business, it’s worth taking the added effort into account. 
The personal accounts route will almost certainly be the most convenient at your disposal. 

Personal versus company accounts: the finances 

When calculating the true cost of the private medical insurance plan in terms of tax implications, there are four main factors to consider: 
The cost of the insurance plan 
The corporate tax saving 
The personal tax costs 
The Class1a National Insurance costs 
By calculating each of these elements to gain a true reflection of the costs, it becomes far easier to understand which route is the best solution. 
It's worth nothing that you could speak to an independent financial advisor (IFA) rather than a restricted financial advisor (RFA) if you choose to seek financial advice. An IFA gives advice with no bias and can consider products from all firms, but an RFA is, as the name suggests, restricted, and may only consider products from a small number of providers. 

Company account calculations 

The main financial benefit to be gained from using your limited company for your private medical insurance revolves around the corporate tax saving. The relief is calculated at 19% of the insurance package costs. At a glance, then, it would seem that this is ideal.  
However, when claiming the medical insurance through the limited company, the company will need to report the benefit on a P11d and pay Employer's NI on the Benefit in Kind. The Class 1a National Insurance is calculated at 13.8%. although you can include this expense when calculating the 19% corporate tax relief. 
And, the P11d has to be included on the personal tax return. You (personally) will be taxed at the 20% (if you are a basic rate taxpayer) or 40% (if you are a higher rate taxpayer) on the value of the benefit. Simultaneously, this also means that the dividends are potentially pushed into the 32.5% tax rate bracket. This means that the personal tax cost may be far larger than if you were to take the personal pathway. 

So, what’s the verdict? 

After analysing the financial and practical elements of private medical insurance, the best choice is usually to pay for it as a private expense. However, there may be situations in which the status of the company and personal finances suggest otherwise. So, it’s best to seek advice on this. 
If you’re uncertain about which way to turn, feel free to book a call with Nicola or drop us an email. We will be able to advise you based on your specific situation. When medical insurance is expensive to start with, making the right choice could potentially save you a three-figure sum annually! 
Written by: 
Nicola J Sorrell - 
Effective Accounting 
Founder | Xero Champion | IR35 Expert 
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