When businesses start offering perks like private medical insurance, it’s a big win for employees. But from a tax perspective? It’s not quite as simple as “just a perk”.
At DNA, we’ve recently introduced a medical insurance policy for our team, so this felt like the perfect time to write a blog about what this actually means — for both employers and employees.
What are Benefits in Kind?
Benefits in Kind (BIKs) are non-cash perks provided to employees in addition to their salary. Perks such as:
- Private medical insurance
- Company cars
- Gym memberships
- Subscriptions
Even though no money changes hands, HMRC still sees these as taxable income because they have a monetary value.
Medical Insurance as a Benefit in Kind
Private medical insurance is one of the most popular employee benefits because it helps employees:
- Access treatment faster
- Support their wellbeing
- Feel valued by their employer
But here’s the key point
Medical insurance provided by an employer is a taxable Benefit in Kind.
That means:
- The employee pays Income Tax on the value of the benefit
- The employer reports it to HMRC
- The employer pays Class 1A National Insurance
- The employer gets Corporation Tax relief on the cost of the benefit
You may be thinking…. who actually pays for what here?
| Employee: | Employer: |
| Pays Income Tax on the value of the insurance Usually collected via tax code or payroll | Pays for the policy Reports the benefit to HMRC Pays Class 1A National Insurance (currently 15%) |
What DNA’s employees say about having this perk:
“It’s nice to have the knowledge that I am covered – should anything arise”.
“Absolutely delighted – very kind and generous”
What type of policy works best?
From a tax perspective, most employer-provided policies fall into:
- Group Private Medical Insurance (PMI) → most common
- Individual policies paid by employer → still taxable
- Cash plans/health plans → also typically taxable
The key rule: if the employer is paying, it’s usually a Benefit in Kind.
There are very limited exemptions (e.g. certain work-related medical treatments), but standard health insurance is not one of them.
Reporting requirements: P11D vs Payrolling
This is where it gets technical — but also where we see the most confusion.
Option 1: P11D Reporting (Traditional Method)
- Benefit reported after the tax year ends
- Deadline: 6 July
- HMRC adjusts employee tax code (which affects the next year’s pay)
Employers must also submit:
- P11D(b) → total benefits summary
- Pay Class 1A NI by 22 July
Option 2: Payrolling Benefits
Instead of reporting at year-end:
- Benefit is taxed in real time through payroll
- No P11D needed (for that benefit)
- Employees see the tax impact immediately
Important: Even if you payroll the benefit, Class 1A NI still needs to be paid after the end of the tax year
Class 1A National Insurance – What is this?
This is often overlooked
- Paid by the employer only
- Applies to most Benefits in Kind
- Calculated as a % of the benefit value
For example:
£1,500 medical insurance
Class 1A NI at 15% = £225 cost to employer
Don’t forget other benefits…
Medical insurance is just one piece of the puzzle.
Other common Benefits in Kind include:
🚗 Company cars
🏋️ Gym memberships
💻 Subscriptions or software
🏡 Living accommodation
All of these may need reporting — and could trigger tax and National Insurance.
👉 If you’re unsure about gym memberships specifically, check out Gillian’s blog – here, read more about insurances here, or a quick overview on company cars here.
Why this matters for Business Owners
Offering benefits is brilliant for:
- Attracting and retaining talent
- Building a strong team culture
- Supporting employee wellbeing
But without the right setup, it can lead to:
- Unexpected tax bills
- Missed reporting deadlines
- HMRC penalties
- Increased costs
Final thoughts
Medical insurance is a fantastic benefit — and one we’re proud to offer at DNA 💙 But like all Benefits in Kind, it comes with responsibilities. Getting it right from the start makes all the difference.
Need help with Benefits & P11Ds?
If you’re thinking about introducing staff benefits (or already have them in place), we can help you.
Just drop us a message — we’re always happy to chat.