Private medical insurance paid for by an employer is a taxable benefit in kind. The employee is taxed on the premium paid for their own cover and for any family members on the policy, and where the employer contracts with the insurer it pays Class 1A National Insurance at 15% for 2026 to 2027. A few specific health benefits are exempt, including one medical check up a year, treatment needed while working abroad and up to £500 of recommended treatment to help an employee return to work.

How is employer paid medical insurance taxed?

Medical insurance falls under the general benefits rules in Part 3 Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). HMRC’s Employment Income Manual at EIM21762 says a director or employee is chargeable where the employer contributes to a medical insurance scheme and they, or members of their family or household, are covered. The taxable amount is:

  • the premium paid for the employee and any covered family or household members, less
  • any part of the premium the employee makes good.

Where a single group premium covers many employees, it has to be apportioned. Usually the policy shows the amount for each employee or category; if not, HMRC accepts any reasonable method the employer adopts and employees generally accept (EIM21763, section 204 ITEPA). GOV.UK confirms the value is the cost to the employer.

Why does it make a difference who holds the policy?

The tax is the same, but the National Insurance and reporting change. GOV.UK sets out three cases:

Arrangement Tax National Insurance
Employer arranges and pays the insurer or provider Form P11D Class 1A
Employee arranges cover, employer pays the provider Form P11D Class 1 through payroll (no PAYE)
Employer reimburses the employee, or pays a cash allowance PAYE through payroll Class 1 through payroll

A different rule applies where the employer insures itself. If the employer is the insured person under a policy that funds treatment it buys for employees, the premium is not a benefit, but the cost of any treatment actually paid for is taxable on the employee (EIM21761). Employer trust funds for medical costs are covered at EIM21772.

What does it cost in practice?

Illustration only. An employer pays an annual premium of £1,400 for cover for an employee and her partner. The employee is a higher rate taxpayer.

  • Taxable benefit: £1,400 (the partner’s share is included)
  • Employee’s income tax at 40%: £560
  • Employer’s Class 1A at 15%: £210

If the employee paid the employer £200 towards the premium, the taxable figure would fall to £1,200. Removing the partner from the policy would reduce the benefit by whatever part of the premium the policy attributes to the partner.

Which health benefits are exempt?

GOV.UK and the Employment Income Manual list several exemptions. Each has its own conditions.

Health screening and medical check ups

Section 320B exempts no more than one health screening assessment and one medical check up in a tax year (EIM21765). A check up means a physical examination by a health professional solely to determine the employee’s state of health; checks connected with treatment are outside it. Where an employee has several employers in a group, the limit applies across the group. Check ups for family members are taxable unless they are also employees.

Eye tests and screen glasses

Under section 320A, eye tests required under health and safety rules for screen users, and glasses or contact lenses needed solely for screen work, are exempt. From 6 April 2026 the exemption also covers the employer paying or reimbursing these costs, not just providing them directly (EIM21765).

Flu vaccinations

GOV.UK lists flu vaccinations as exempt whether the employer provides them or reimburses the cost.

Treatment to help a return to work

Section 320C exempts up to £500 per employee per tax year of recommended medical treatment (EIM21774). Before the recommendation, the employee must have been assessed by a health care professional as unfit for work for at least 28 consecutive days, or have been absent for at least 28 consecutive days. The recommendation must be in writing, given to both employer and employee, specify the treatment and be made to help the employee return to work as part of occupational health services. Costs above £500 are taxable, related costs such as travel are not covered, and insurance premiums never qualify (EIM21777).

Work related injuries

HMRC accepts at EIM21770 that treatment which only restores an employee after an injury that is a particular risk of their job is not a benefit. A policy that covers only work related injury or illness, with no family cover, is also not a benefit. Cover for injury both at work and outside work is taxable.

How does the exemption for treatment abroad work?

Section 325 ITEPA exempts the cost of medical treatment outside the UK where the need for treatment arises while the employee is abroad and the absence is for the purpose of performing their duties (EIM21766). It applies where the employer commits to meeting medical costs on business trips, even if the employee pays first and is reimbursed, and it also covers insurance against those costs. GOV.UK adds that the employer must have committed in advance to pay unless it arranges and pays the provider directly.

The exemption is narrow. It covers only the employee, not family members, and only treatment needed while working abroad. Ordinary private medical cover for treatment in the UK remains taxable in the normal way, even if the same policy also includes overseas cover.

What about cover for former employees?

Medical insurance for retired employees is not taxed under the benefits code, because a pension is not an employment. HMRC says at EIM21764 that it is still taxable as employment or pension income if it is a specific part of the pension, part of an employer financed retirement benefits scheme, or part of a termination package. In the year of retirement the premium may need apportioning.

Does salary sacrifice change the answer?

Yes. Under the optional remuneration rules, the taxable amount is the greater of the cost of the benefit and the salary given up. HMRC’s example in 480 Appendix 12 has a policy costing £500 in return for £600 of salary: £600 is taxable, falling to £550 if the employee makes good £50. The exemptions above also fall away where the benefit is provided through salary sacrifice; GOV.UK says such medical benefits must always be reported, and EIM21774 confirms the return to work exemption does not apply.

How is it reported and what goes wrong?

Taxable medical insurance goes on form P11D by 6 July after the tax year, with Class 1A paid by 22 July (19 July by cheque). Employers can instead payroll the benefit so tax is collected through each pay period. Common errors include:

  • reporting only the employee’s share when the policy also covers a partner or children
  • treating reimbursed treatment costs as exempt when they are earnings through payroll
  • assuming the £500 return to work exemption covers any treatment or an insurance premium
  • missing Class 1 National Insurance where the employee holds the contract and the employer pays the bill
  • treating a worldwide policy as exempt because it includes cover for business trips

For other common staff benefit exemptions, see the annual functions exemption and trivial benefits.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.