After sorting out their main contractor insurance policies (such as public liability insurance and professional indemnity insurance) which look after their businesses, most contractors turn next to the other area that they used to have covered when they were working in paid employment for a larger company – health insurance. And the first question that all contractors ask is ‘what health cover can I get via my limited company?’
Claiming Medical Expenses Through Your Limited Company
In a nutshell, your limited company is permitted to cover the costs of as many expenses of a medical nature as is necessary (or as you want) but you personally will be taxed the value of the benefits in kind that you receive as part of the company. Additionally, your limited company will also be required to pay its Employer National Insurance contributions (also known as NIC’s) at a rate of 13.8% of the value of the benefits in kind. To put it another way, you can only get out of paying a personal tax on any health and medical related benefits if your company itself benefits from paying that expense. To take one example, businesses are permitted to pay for the eye tests of their employees if those employees use computers, but if they want to pay for their employee’s health insurance then both the employee and the company have to pay additional tax. Below we will look at these in a bit more detail, starting with Health Insurance:
Contractor Health Insurance – Is It Worth It?
When it comes to contractor health insurance, your company is permitted to pay for the cost of your personal health insurance and then it is allowed to offset the costs against its bill for corporation tax. However, as mentioned above, because you will be benefiting personally from the health policy, you will also have to pay some extra tax on the value of that benefit. The exception comes if you are contracting overseas, in which case the costs of medical treatment are then allowable and no BIK (benefits in kind) charges will apply.
With all that in mind, it is often the case that it is better to get your health insurance through your limited company as firms tend to be offered better value and more comprehensive cover than individual contractors. Indeed, the latest figures from the government show that more than 2.5 million employees in the UK currently get their health insurance from their employers, proving that it is a decent perk and worth considering. Nevertheless, it is worth sitting down with your accountant and working out the difference between the policies you would get on your own or through your company and which would work out cheaper in the long run.
Permanent Health Insurance for Contractors
Permanent health insurance policies are policies which cover you in case something happens that means you are no longer able to work. Depending on what stage you are in your contracting career, the costs of insurance will vary greatly. That’s because you will be insuring yourself based on how long you might be out of work and how much you wish to receive in the event of making a claim on the policy, as well as what is known as the deferred period, which is the time between when the claim is made and when the payments start. As with other policies, the cost of permanent health insurance can be taken up by your limited company and then offset against tax. However, in the event of you making a claim on the policy, BIK charges will apply on any payments that you then receive. On the other hand, should you pay for the policy out of income post-tax, the payments that you might receive at a later date would be free of tax.
As mentioned above, eye tests are allowable business expenses if you sit at a computer for any part of your work and you will not face any BIK liability.
Can Contractors Claim For Medical Check Ups?
You are also permitted to claim back the cost of one medical checkup and one general health assessment per employee at the company without facing any BIK liability. A health assessment is defined by HMRC as an assessment that is used “to identify employees who might be at a particular risk of ill-health.” And they define a medical check-up as a “physical examination of the employee by a health professional for (and only for) determining the employee’s state of health.”
Consequently if you, as an individual, had already planned to have a health assessment then it would be worth your while doing it through your limited company as you won’t be taxed on any benefit from it.
Is Medical Treatment An Allowable Expense?
Medical treatment can be seen as an allowable expense if it is needed for an injury that occurred while you were going about your contracting work. Additionally, as mentioned above, medical treatment that is needed whilst working overseas is also allowable as a non-taxable expense.
Can I Claim for Membership of a Gym or Health Club?
This one is unlikely to fly. It is very difficult to claim gym memberships as legitimate business expenses. Why? Because although a company would certainly benefit from its employees being healthy, the cost of them being healthy still needs to be borne by the employees themselves. If the company was to pay the employees gym membership then it would also have to pay employers NIC’s on the cost and then there would also be BIK charges when it comes to paying tax at the end of the year. For a contractor with a limited company, it is most likely better value just to get the gym membership themselves.