Tax on company medical benefits?

Question

Hi, I have to opt into or out of my company medical benefits scheme. Apparently you pay no NI on the benefit but you can be taxed. Does anyone know how much? I pay the "standard" tax level (22% is it ??). If I take my medical cover and say pay £200 for it what do I get taxed on exactly? The £200 I spent or what the total benefit would be worth?

Am confused and there is little in plain english on the net to explain.

thanks,

moose

Answer 1

Hi, if your employer pays the Medical Company say £500, and you contribute £200 towards it, the net benefit you are receiving is £300. At the end of each year your employer submits a "P11D" form and gives you a copy which shows these benefits.

You are correct that you are taxed on the benefit which using the above figures, would be £300. The way that this tax is collected is that once the Inland Revenue know you have this benefit, they reduce your personal allowance by £300 so you pay more tax. So for example if your personal allowance is 543L (which is £5435), your tax code becomes 513L (which is £5,435 less £300).

If you are a basic rate taxpayer, then this means that you are taxed on an additional £300 which is currently 20% - or £60. Your employer pays 12.8% Class 1A National Insurance but you pay no NI.

If you are higher rate, obviously you pay 40% tax on the £300.

Hope this helps

Answer 2

You are only taxed on what your employer pays on your behalf.  So if he pays £200, you would pay £40 (£200 x 20%) This would eventually mean your code number would be restricted by £200, although you may have benefit before being taxed whilst the changes were being implemented, resulting in a one-off underpayment.

Any contributions you make yourself to the scheme have no tax consequences.

Answer 3

If you get benefits through your company by paying into a medical scheme etc then what usually happens is that the money comes out of your salary before tax is deducted, BUT, your tax free personal allowance is reduced accordingly. So yes you would still be paying tax because your free allowance has gone down but the amount of NI does reduce.

The 'standard' or basic level of tax now is 20%

Answer 4

I paid tax on my previous company medical insurance like yours. To be honest I half wish i'd opted out because I never used it, I didn't really need it and the benefit in kind wasn't administered correctly and I never noticed. Consequently HMRC randomly took £200 extra tax a few months ago to cover the tax on my medical insurance on 2005-6. I never received notice as they didn't hve my address and I wasn't exactly thrilled about it!

My medical insurance was included as part of my package at a cost or value to me of £300. However if I opted out I couldn't take the cash. It's P11D value, as a benefit in kind was £390 pa. Thus you are taxed on what it is worth, not the cost through your employer's scheme.

If yours is similar you will pay 20% tax on the £390 (ie: £6.50 per month in tax). It will be taxed through a reduction in your PAYE code. You won't pay NI on this (although your employer will pay class 1A NIC).

If you took the cash instead and say this was £300 you'd pay £5 tax and £2.75 NIC, which would be a monthly net of £17.25.

Thus the real cost to you (assuming you can take cash instead) is £23.75.