Tax Planning for High-Earning Company Directors
"I'll sort my health out when the busy period ends." I have heard that sentence from company directors more times than I can count. The busy period rarely ends. And when a knee, a back or a worrying symptom finally forces the issue, the same director discovers that an NHS waiting list and a business with one pair of hands do not mix well.
That is why private healthcare matters to owner-managers. A director who is off work is a business that is not earning. Quick access to a specialist is not a luxury. For many of my clients in Tunbridge Wells, Tonbridge and Sevenoaks, it is business continuity.
The tax question comes next, and it is the one I am asked most often. Can the company pay? Yes, it can. But it is not the tax-free perk that many people imagine, and a few exceptions are worth knowing about because they genuinely are free of tax. In this guide, I explain what a limited company can pay for, how it is taxed for the company and for you, what your obligations are as the employer, and what to think about before signing a policy. I have used the 2026–27 rules throughout, and I have worked through the numbers so you can see what it really costs.
A limited company can pay for a director's private medical insurance or treatment. The company can usually deduct the cost when it calculates its profits for Corporation Tax. However, the director is normally taxed on the value of the cover as a benefit in kind, and the company pays Class 1A National Insurance on it at 15%.
So the company gets relief, but the director does not escape tax. The arrangement is often still worth having. It simply needs to be understood properly, and a handful of specific health benefits can be provided entirely tax-free. I cover those below.
Before we get to the tax, it helps to be clear about what "private healthcare" can mean in practice. Directors usually have one of four things in mind.
This is the main one. The company takes out a policy, pays the premium, and the policy covers the director for private treatment of eligible conditions. Most policies cover consultations, diagnostics, surgery and hospital stays. They usually exclude conditions you already had when you joined, and they often exclude routine GP visits, chronic conditions and emergencies. Always read the exclusions, because the headline price tells you very little about what the policy will pay for.
The company should be the policyholder, and the premium should be paid from the company bank account. If you pay it personally and ask the company to reimburse you, the same tax treatment normally applies, but the paperwork is messier.
A cash plan pays you a fixed amount towards everyday healthcare costs such as dental check-ups, optical care and physiotherapy. The cover is smaller than full medical insurance, and so are the premiums. If the company pays, the benefit is generally taxed in the same way as medical insurance.
The company could pay a private hospital or clinic directly for a particular procedure. This is rare for directors and usually more expensive than insurance, because there is no pooling of risk. It is taxed as a benefit unless one of the exemptions applies.
Many directors want their spouse and children included. The company can arrange it, but the whole premium, including the family members' share, is taxed as a benefit on the director. That is worth bearing in mind when you compare quotes.
This is the part most people care about, so I will take it in stages.
A company can deduct an expense if it was incurred "wholly and exclusively" for the purposes of the trade. Medical insurance for employees is generally accepted as a business cost, because it forms part of their remuneration package, and a director who is also an employee is no different. The premium, and the Class 1A National Insurance that follows it, are normally allowable deductions.
For a company in the marginal relief band, where profits are between £50,000 and £250,000, the effective rate of Corporation Tax is 26.5%, so every £100 of deductible cost reduces the tax bill by £26.50. For profits below £50,000 the rate is 19%, so the relief is smaller.
If a company has other associated companies, those thresholds are divided between them. That is an easy thing to forget.
The director is taxed on the cash equivalent of the benefit. For private medical insurance, that is essentially the cost to the company of providing the cover, including Insurance Premium Tax. The amount is taxed as additional income at the director's marginal rate, so 20% for a basic rate taxpayer, 40% for a higher rate taxpayer and 45% for an additional rate taxpayer.
There is no employee National Insurance on the benefit. That is a small silver lining. The tax is normally collected by adjusting the director's tax code, or through Self Assessment if the director files a return.
On top of the Corporation Tax deduction, the company pays Class 1A National Insurance at 15% of the value of the benefit. It is paid once a year, by 22 July after the end of the tax year if you pay electronically, or by 19 July if you pay by cheque. The Class 1A is itself a deductible expense.
Insurers add Insurance Premium Tax to health policies at the standard rate of 12%. It is built into the quoted premium, so you will not see it as a separate line, and it cannot be reclaimed. The full premium, with the tax included, is what the company deducts and what the director is taxed on.
Let me put the numbers together so you can see how the tax works. Suppose the company pays an annual premium of £1,800 for a higher rate taxpaying director. I have assumed the company is in the 26.5% marginal band.
The company pays Class 1A of 15%, which is £270. The total deductible cost is £2,070, and the Corporation Tax saving is £548.55. The net cost to the company is £1,521.45.
The director is taxed on £1,800 at 40%, which is £720.
Now compare that with the alternative. Suppose you pay the £1,800 premium personally, out of dividends. As a higher rate taxpayer, dividends are taxed at 35.75% from 6 April 2026, so you need a gross dividend of about £2,802 to be left with £1,800. For the company to pay that dividend, it needs about £3,812 of profit before Corporation Tax.
If the company pays the premium instead, it uses £2,070 of pre-tax profit for the premium and Class 1A, plus about £1,525 of pre-tax profit to fund the dividend that covers your £720 of income tax. That totals about £3,595.
So the company-paid route saves roughly £217, or about 6%, on a £1,800 policy. For a basic rate taxpayer, the saving is around £125. These are real savings, but they are modest. The reason to have the policy is the cover, not the tax saving. If anybody tells you private medical insurance through your company is a tax-saving scheme, treat that with caution!
There is good news too. HMRC allows a short list of health-related benefits to be provided without a tax charge on the director and without Class 1A National Insurance. They are specific, and the conditions matter.
One health screening and one medical check-up a year are exempt. Any further ones in the same tax year are taxable and need to be reported. This is the simplest and most useful exemption for directors. A company-paid annual check can be a good way to catch problems early.
Eye tests are exempt if they are required by health and safety law for employees who use a screen, and so are glasses or contact lenses needed for that screen work. If you spend most of your working day at a computer, this applies to you.
The company can provide flu vaccinations, or reimburse the cost, without a tax charge. A small, sensible and often-overlooked benefit.
Here, there are strict conditions. If a health professional recommends treatment as part of occupational health services to help an employee return to work, the first £500 a year is exempt. The employee must have been assessed as unfit for work, or absent from work, for at least 28 consecutive days because of injury or ill health. The recommendation must be in writing, given to both the employer and the employee, and it must name the specific treatment. Anything above £500 is taxable.
This exemption does not apply when the treatment is provided through a salary sacrifice arrangement.
Treatment or insurance for an injury or illness caused by the employee's work is exempt, and so is treatment for an employee who needs it while working overseas for the company, if the company agreed in advance to pay or arranges and pays the provider directly. These are less common for owner-managed businesses in Kent, but they are worth knowing about if you travel abroad for work.
HMRC announced that from 6 April 2026, certain reimbursements of costs, including eye tests, flu vaccinations and home working equipment, would be exempt from income tax and National Insurance. The legislation was planned for the Finance Bill 2025–26, so please check the final wording before relying on it for something unusual. Our guide on working from home explains the equipment side.
If you are a director of your own company, you are also the employer. That makes you responsible for several things, even if the only employee is you.
An employer is not required by law to provide private healthcare. It is a voluntary benefit. If you employ staff, though, you should think about how you will treat them. A policy covering you alone, and no one else, can feel unfair, and it can affect morale and recruitment. Offering cover to employees is increasingly common, and some of my Maidstone clients find it helps them compete with larger employers for good people.
If you do choose to provide cover to some employees but not others, be careful. The reasons for the difference should be objective, such as seniority, length of service or role, and applied consistently. Unequal treatment that affects people with protected characteristics may create a legal risk. If in doubt, take employment law advice.
Private medical insurance is reportable. For each director or employee who receives it, the company has to complete a form P11D showing the value of the benefit, and a form P11D(b) showing the Class 1A National Insurance due. Both are due by 6 July after the end of the tax year. The Class 1A payment is due by 22 July if paid electronically.
An alternative is to put the benefit through payroll, so the tax is collected throughout the year. This is known as payrolling benefits. At the moment it is optional, and employers must register with HMRC before the start of the tax year to use it. HMRC has announced that payrolling will become mandatory for most benefits from April 2027. If that happens, the P11D process will largely fall away for the benefits that are payrolled, but you will have to make sure your payroll software can handle it. Speak to us if you have not yet prepared.
Another option is a PAYE Settlement Agreement, in which the company pays the tax on the benefit on the employee's behalf. That tax is itself a cost to the company, so it is worth running the numbers before choosing it.
The policy should be in the name of the company. The premiums should be paid from the company bank account. And the accounts should record the premium accurately, not hide it in a general expense category. Our guide to benefits in kind explains the principle, and our guide to company expenses covers how to record them.
If you employ others and the company sees details of claims or conditions, treat that information as sensitive. Health data has special protection under data protection law. In most cases the insurer deals with the employee directly and the company sees only the premium.
The employer obligations are fairly mechanical. The director considerations are where judgement matters.
Some insurers offer company schemes with a minimum number of members, though many will cover a single director. The price per head usually falls as the group gets bigger, and some insurers offer simplified underwriting for groups. If you have two directors or a small team, ask a broker to quote both individual and group options. A broker is usually paid by the insurer and does not charge you directly, so there is little cost in asking.
This is where policies differ most, and where people are most often disappointed. Under a moratorium policy, you do not have to disclose your full medical history, but conditions you had in the last few years are excluded until you have gone a set period without symptoms or treatment. Under full medical underwriting, you declare your history upfront and the insurer tells you exactly what is excluded. Neither is better in every case. Full underwriting gives certainty. A moratorium is simpler to start but can lead to disputed claims later. Read the terms carefully, and do not assume that anything you already know about will be covered.
A policy that costs £1,200 at 40 may cost considerably more at 55. Insurers also adjust premiums when claims rise across the market. Plan for increases, and review the policy each year. I see directors stick with a renewal quote without comparing the market, and that can be an expensive habit. Raising the excess or choosing a more limited hospital list can bring the price down.
The policy belongs to the company. If you sell the business, leave or step down as a director, the cover normally stops, or you may be able to transfer to an individual policy. Ask the insurer in advance, because switching to a personal policy later may mean new underwriting. This matters especially if you have developed a condition since you joined. If you are thinking of selling your business in the next few years, factor this in.
For some directors, yes. If you only want basic cover and you are a basic rate taxpayer, the saving from running it through the company is small, as the example showed. If you want to keep things simple and you do not want a benefit on your P11D, paying personally from your own funds is perfectly sensible. For a higher rate taxpayer with a family policy, the saving is larger, but still modest. We can run the figures with you.
If your spouse is also a director or an employee of the company, and they carry out genuine duties, they could be covered as an employee in their own right. They would also be taxed on the benefit. The cover needs to reflect real work, though, and HMRC will look closely at any role that exists only on paper.
Premiums are normally paid monthly or annually. Paying annually is often cheaper, but it ties up cash. A director in a company with unpredictable cashflow may prefer monthly payments, even at a slightly higher total cost. The Class 1A bill arrives in July the following year, so it is worth setting money aside.
One last point, and it goes beyond tax. If you are the only director and the key person in the company, think about what happens to the business if you are unwell for several months. Private medical insurance helps with treatment. It does not replace your income. Income protection insurance and a plan for who runs the business are separate questions, and they deserve some thought. We can help you think about how the company would cope.
Let me put a face to this. Imagine a Tonbridge IT consultant who runs his own limited company. He is 48, a higher rate taxpayer, and the company profit for the year is about £100,000, which puts it in the marginal relief band.
He decides to take out a private medical insurance policy for himself, with an annual premium of £1,800, including Insurance Premium Tax. The company pays it from its bank account.
At the year end, the company reports the benefit on a P11D. He is taxed on £1,800 at 40%, so he owes £720, collected through his tax code. The company pays Class 1A National Insurance of £270 by 22 July.
The company's Corporation Tax bill falls by £548.55, because it can deduct £2,070. The net cost to the company is £1,521.45.
Over the same year, the company also pays for his annual health screening, a flu jab and an eye test because he works at a screen all day. Those are covered by the exemptions. They cost the company £280 in total, and there is nothing to report and no tax for him to pay. The company still deducts them.
Six months into the policy, he has an issue with his knee. His GP refers him to a specialist, and the insurer pays for a scan and a short course of treatment within three weeks. He tells me he lost five working days over the whole episode, rather than the months he would have faced on an NHS waiting list. For a one-man company, that difference was worth far more than the £217 saving in tax.
If instead he had paid for the policy from his own pocket, the cost to the company's profits would have been about £217 higher for the same cover, and there would have been no P11D. Neither answer is wrong. It depends on what suits him.
Quick answer: Yes. A limited company can pay for a director's private medical insurance or treatment, and it can usually deduct the cost for Corporation Tax. However, the director is normally taxed on the cover as a benefit in kind, and the company pays Class 1A National Insurance at 15%. Some health benefits, such as one annual health screening, eye tests for screen work and flu jabs, can be provided tax-free.
What this means for a company director: Treat private medical insurance as a way to protect your health and your business, not as a way to save tax. The saving over paying personally is real but modest, around 6% for a higher rate taxpayer in the example above. You, as employer, need to report the benefit on a P11D and P11D(b) by 6 July and pay Class 1A by 22 July.
Example: A Tonbridge consultant's company pays an £1,800 premium. He pays £720 of income tax on the benefit as a higher rate taxpayer, and the company pays £270 of Class 1A and saves £548.55 in Corporation Tax. The company-paid route costs about £217 less than paying personally from dividends. His annual health check, flu jab and eye test cost £280 and are tax-free.
Common mistakes: Assuming the company's cover is tax-free. Forgetting to report it on a P11D. Not noticing the exclusions. Including family members without realising the whole premium is taxable. Exceeding the one-a-year limit on health screening. Claiming the £500 exemption without the required written recommendation. Ignoring renewal increases.
When should you speak to an accountant? Before you take out a policy, so we can model the cost. When you add staff or family members. When you are considering payrolling benefits ahead of April 2027. When you are planning to sell, leave or restructure the company. And when you are unsure whether a particular treatment qualifies for an exemption.
The company gets a deduction, but you pay tax on the benefit, and the company pays Class 1A. Do not buy the policy because you think it is free.
Medical insurance is a reportable benefit. Missing the P11D and P11D(b) deadline of 6 July can lead to penalties. If you have been providing cover for several years and have never reported it, speak to us as soon as possible.
One screening a year means one. A second one is taxable. The £500 treatment exemption needs the absence, the occupational health recommendation and the written note. If any are missing, the exemption does not apply.
Adding a spouse and children is easy. But the entire premium is taxed on you as a benefit, and the price goes up more than you might expect.
A cheap policy with a narrow hospital list, a high excess and long exclusions may not help when you need it. Compare what it covers, not just what it costs.
Premiums rise, your needs change, and the market moves. Review the policy every year, and ask a broker to compare the alternatives.
The rules on benefits are changing, with mandatory payrolling due from April 2027, and the Autumn Budget is due on 28 October 2026. What I have written is correct for October 2026, so please check the position again before you act.
If you are thinking about private healthcare for yourself or your team, we would love to help you work out the real cost. At Peter Hodgson & Co, we work with sole traders, contractors and company directors across Tunbridge Wells, Tonbridge, Sevenoaks, Maidstone and the rest of Kent and the South East. We can model the cost of company-paid versus personal cover, make sure the benefit is reported correctly, and advise on the payroll side so nothing catches you out in July.
To arrange a conversation, complete the "Contact Us" form on our website, call us on 01892 515 733, or email info@peterhodgson.co.uk. We would be glad to hear from you!
Disclaimer:
The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.
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