Is There VAT on Medical Insurance?

As a small business owner, offering private medical insurance (PMI) can be a valuable benefit for your employees. It provides them with the reassurance that they will have quick access to care when needed, and it provides them with the option to return to work as soon as possible if they require treatment for a serious condition. This blog post focuses on the tax implications and will answer the question, "Is there VAT on private medical insurance?"

Benefits of Private Medical Insurance (PMI)

One of the key benefits of PMI in the UK is the speed of access to care. Employees with PMI can avoid NHS waiting lists and receive immediate access to GP services and fast referrals for diagnostic services like CT and MRI scans. PMI policies also offer employees the flexibility to choose their hospital or consultant and may provide access to services that are difficult to obtain through the NHS, such as mental health therapy.

Is There VAT on Private Medical Insurance?

When purchasing PMI for your employees, your business will typically cover the premiums. Regarding VAT, the answer is no—private medical insurance schemes are classified as insurance contracts by HMRC and do not attract VAT.

However, it's important to note that if non-insurance services are offered alongside the PMI scheme, there may be VAT to pay on those. For instance, if a gym membership is included, a VAT-registered business can reclaim VAT on that as it would on other goods and services.

Is There an Insurance Premium Tax on Private Medical Insurance?

While PMI premiums do not attract VAT, they are subject to Insurance Premium Tax (IPT) at the standard rate, currently 12%. Some business insurance types are exempt from IPT, such as long-term insurance contracts like business life insurance or permanent health insurance contracts like business income protection. However, private medical insurance does not fall under these exemptions and thus IPT is chargeable. Unlike VAT, IPT cannot be reclaimed.