Employees pay income tax on the premium at their marginal rate. On a £600 annual premium that's £120 a year (£10 a month) at basic rate, £240 at higher rate and £270 at additional rate — collected through an adjusted tax code. There's no employee National Insurance on it, and family cover the company pays for counts too.
- ✓BIK tax = premium × marginal rate: 20%, 40% or 45% (Scottish rates differ).
- ✓A £1,000 premium costs an employee £16.67–£37.50 a month in tax — far less than buying cover personally.
- ✓Collected via a reduced tax code through PAYE; no employee NIC applies to the benefit.
The one-line calculation
The taxable value of company health insurance is generally the premium the employer pays for your cover in the tax year. Multiply it by your marginal income tax rate — 20% basic, 40% higher, 45% additional — and that's your annual cost. No employee National Insurance is due on benefits in kind, so the marginal rate is the whole story for most people.
Two things the calculation deliberately ignores: what the cover would cost you to buy personally (irrelevant to HMRC — the benefit is what your employer paid), and whether you actually claimed (also irrelevant — you're taxed on having cover, not on using it). A claim-free year doesn't reduce the tax, and a year of heavy treatment doesn't increase it.
How the tax actually gets collected
Nothing is deducted when you join the scheme. Until April 2027, most employers report the benefit after the tax year on a P11D, and HMRC then adjusts your tax code to collect the tax through PAYE:
- The code drops by the benefit value. A £1,200 benefit turns 1257L into roughly 1137L — you get £1,200 less tax-free pay, so an extra £1,200 is taxed at your marginal rate: £240 for a basic-rate taxpayer, £480 at higher rate.
- Spread across the year. The extra tax comes out of each payslip in twelfths — £20 or £40 a month in that example — rather than as a bill.
- The first year can double up. When you first join a scheme, HMRC may collect this year's benefit and adjust for last year's in the same code, so the initial adjustment can look larger than the tables above. It settles down after a year.
- Payrolled schemes skip the code change. Some employers already add the benefit to taxable pay each month, so tax is collected in real time — and from April 2027 this becomes mandatory for everyone. Same tax, different plumbing.
Either way you can sanity-check the deduction: benefit value × your marginal rate ÷ 12 should be close to the monthly cost on your payslip. If your tax code looks wrong — say the benefit figure doesn't match your premium — HMRC's personal tax account is the quickest place to correct it.
Show your team what it really costs them
Is it still worth it? The value comparison
The tax question only matters against the alternative. A comparable personal policy for a 40-year-old might run £60–£80 a month at full price; through work, the same person pays only the tax — perhaps £10–£40 a month depending on band and premium. Group schemes are also typically 10–30% cheaper per head than individual cover and often accept medical history that would be excluded on a personal policy.
For anyone who still decides the benefit isn't worth the tax — common among young, healthy staff on family-sized premiums — the mechanics of leaving the scheme are covered in our guide to opting out of company health insurance.
Frequently asked questions
How much tax do I pay on company health insurance as a basic-rate taxpayer?
20% of the premium your employer pays for your cover. A £600 annual premium costs £120 a year — £10 a month through your tax code. A £1,200 premium costs £240 a year, and company-paid family cover at £2,000 costs £400. No employee National Insurance is added on top.
How much tax does a higher-rate taxpayer pay on health insurance BIK?
40% of the premium: £240 a year on a £600 plan, £480 on £1,200, £800 on £2,000 family cover — roughly £20 to £67 a month collected through PAYE. Additional-rate taxpayers pay 45%, and if the benefit drags income past £100,000, allowance withdrawal can push the effective rate to 60%.
How does the tax code change for health insurance benefit in kind?
HMRC reduces your tax-free allowance by the benefit value: a £1,200 premium typically turns code 1257L into about 1137L, taxing an extra £1,200 of pay at your marginal rate across the year's payslips. Check it by multiplying the benefit by your rate and dividing by twelve — that's the expected monthly cost.
Does family cover on a work health insurance scheme increase my BIK tax?
Yes. If your employer pays to cover your partner or children, the entire family premium counts as your benefit — £2,000 of family cover creates £400 of tax at basic rate or £800 at higher rate, versus £120–£240 for a £600 single plan. Contributions you're required to make yourself generally reduce the taxable figure.
Do I pay National Insurance on health insurance benefit in kind?
No. Benefits in kind aren't subject to employee Class 1 National Insurance, so your only cost is income tax at your marginal rate. Your employer pays Class 1A NIC at 15% on the benefit instead — that's their bill, not a payslip deduction.
Are the BIK tax figures different for Scottish taxpayers?
Yes — Scottish income tax bands run from 19% to 48% with intermediate steps, so a £1,200 premium can cost anywhere from about £228 to £576 a year depending on your band, versus £240–£540 under the 20/40/45% structure elsewhere in the UK. Welsh rates currently match England's.
Why did my tax jump in the first year of company health insurance?
New benefits often reach HMRC after the tax year ends, so your first adjusted code can collect this year's tax and catch up last year's benefit simultaneously — temporarily doubling the monthly cost. It normalises once reporting catches up, and payrolled schemes (mandatory from April 2027) avoid the lag entirely.
How do I check my health insurance BIK tax is correct?
Compare the benefit figure in your tax code (in your HMRC personal tax account) against the premium your employer actually pays for you — your P11D copy or HR can confirm it. Then multiply by your marginal rate and divide by 12; that should match the extra monthly tax. Mismatches are usually stale figures after leaving a scheme or changing cover level.
Is company health insurance worth it despite the BIK tax?
Usually, clearly yes. You pay only the tax — perhaps £10–£40 a month — for cover that would cost £60–£80 a month bought personally, and group schemes often include medical history that an individual policy would exclude. The maths gets more marginal mainly for large family premiums at higher rates.
Will the tax on health insurance change when payrolling starts in 2027?
The amount doesn't change — it's still the premium times your marginal rate. What changes is collection: from April 2027 the benefit is added to taxable pay in real time each payday instead of via P11Ds and tax-code adjustments, so payslips show it immediately and first-year catch-up quirks disappear.