Contractors' Questions: Can my company pay for health insurance?
Contractor’s Question: How is it that contractors pay their health insurance via their limited company, when a Java contractor who sits in an office all day hardly needs a private medical scheme ‘wholly for business purposes’?
In my situation, could I put the monthly cost of health cover on my limited company, in the event where I’m the added, ‘second person’ on my permie boyfriend’s employer-provided health cover scheme? If my PSC can’t pay it outright, can I at least get the tax back?
Expert’s Answer: As the cost of the health or medical cover is purely related to a personal expense, then I would recommend that you pay this amount personally rather than from the company - otherwise, if your company was to reimburse you for this sum, then this is classed as earnings and would attract Income Tax and Employer and Employee National Insurance.
Note, if you were to take out medical insurance in your company name, then you would benefit from corporation tax relief.
However, as you rightly point out, there would be a sting in the tail, as the expense would not be wholly for business purposes – a benefit in kind charge would arise on you personally, based on the cost of the medical insurance to the company. This would result in a personal tax charge reportable on your P11D, together with a company National Insurance cost of 13.8%. If the payment was made by you from personal funds, then you can fund this from a dividend which does not incur a National Insurance charge which makes it more tax-efficient.
The expert was Matt Fryer, head of compliance at contractor accountancy firm Brookson.
Editor's Note: For more information or for a quote on private health insurance for contractors from specialist provider WPA please visit our medical cover page.