Health insurance premiums a company pays for employees or directors are generally allowable for corporation tax, as a staff cost incurred wholly and exclusively for the trade. Relief is worth 19% at the small profits rate, 25% at the main rate — so a £10,000 scheme effectively costs £7,500–£8,100. The benefit-in-kind rules for employees apply separately.
- ✓Premiums for employee and director cover are generally deductible as a staff cost.
- ✓Relief is worth 19% (profits under £50k), 25% (over £250k), effectively 26.5% in the marginal band.
- ✓Deductibility doesn't remove the BIK: employees still pay income tax and the company Class 1A at 15%.
The wholly-and-exclusively test
A company gets corporation tax relief on an expense if it's incurred wholly and exclusively for the purposes of the trade. Health insurance for employees and directors generally passes: it's part of the remuneration package, provided to attract, retain and keep staff healthy and at work — the same footing as salary. HMRC's guidance treats employee medical insurance as a normal staff cost.
The flip side is that the cover is a taxable benefit for the person receiving it. Deductibility and benefit-in-kind are separate questions with different answers: the company generally gets relief on the premium, and the employee generally pays income tax on it, and the company pays Class 1A NIC at 15%. The Class 1A itself is also generally deductible.
Worked examples at each rate
Since April 2023 corporation tax has three effective bands: the 19% small profits rate (taxable profits up to £50,000), the 25% main rate (over £250,000), and marginal relief in between — which produces an effective 26.5% rate on each extra pound of profit between the thresholds. Relief on a deductible premium is worth whichever rate applies to your company's profits:
| Annual premiums | Relief at 19% | Relief at 26.5% (marginal band) | Relief at 25% |
|---|---|---|---|
| £1,000 (director-only plan) | £190 | £265 | £250 |
| £6,840 (10 staff at ~£57/month) | £1,300 | £1,813 | £1,710 |
| £20,000 (30 staff, basic plan) | £3,800 | £5,300 | £5,000 |
So a 10-person scheme at the market average of about £57 per employee per month (£6,840 a year) effectively costs a main-rate company around £5,130 after relief — before counting the relief on the Class 1A too. Companies sitting in the £50,000–£250,000 marginal band get the highest effective relief per pound, at 26.5%.
The thresholds are divided between associated companies, so a group of two companies hits the 25% band at £125,000 each. Your accountant will apply the right rate; the point here is that the premium reduces taxable profit like any other staff cost.
The sole-director question
The most common query we see: can my one-person limited company get relief on my own health insurance? Generally yes — a director is an office-holder and the cover forms part of their remuneration package, the same as their salary. The premium is generally deductible for the company, the director pays income tax on the benefit in kind, and the company pays Class 1A.
The hedge matters, though. The wholly-and-exclusively test is about purpose: remunerating a director passes; a personal expense with no remuneration character can fail. In practice HMRC rarely challenges modest director cover treated consistently as a benefit — reported on the P11D, Class 1A paid — because the Exchequer collects tax on it as remuneration. Problems arise when companies claim the deduction but 'forget' the benefit-in-kind side. The full decision maths for directors — company-paid versus paying personally out of dividends — is in our director health insurance guide.
See the after-relief cost for your team
What doesn't get relief
- Cover for non-employees. Premiums for a shareholder who doesn't work in the business, or family members covered in their own right rather than as an employee's dependants, generally fail wholly-and-exclusively.
- Partners and LLP members. They aren't employees, so their cover isn't a staff cost — see our partnerships and LLPs guide.
- Sole traders' own cover. There's no company; your own premiums are personal, though cover for your employees is generally deductible against profits.
- The VAT angle is nil either way. Insurance is VAT-exempt, so there's no input VAT to reclaim — the 12% Insurance Premium Tax inside the premium isn't recoverable. Details in our VAT and IPT guide.
Family cover for an employee's partner and children sits on the right side of the line when it's provided as part of that employee's package: the premium is generally deductible, with the whole family amount taxed as the employee's benefit.
A related trap: the company paying premiums on a policy held in a director's personal name. That's generally settling a private bill rather than buying employee cover — the payment typically lands on the director's loan account with no deduction at all. If that's your setup, asking the insurer to rewrite the policy into the company's name restores the normal treatment from the next premium onward.
Documentation for year-end
Relief is claimed simply by including the premiums in the company's expenses — typically within staff costs — in the accounts that feed the CT600. To make year-end painless, keep:
- The policy schedule and invoices showing the company as policyholder and payer.
- A per-member premium split from the insurer — it drives the P11Ds as well as the expense analysis.
- Board minute or written record for director cover, noting it's provided as part of remuneration — cheap insurance against a purpose challenge.
- P11D and P11D(b) copies evidencing the benefit was reported and Class 1A paid.
If the premium year straddles your accounting year-end, the expense is generally spread across the periods it covers rather than claimed all at once — our company accounts guide covers the bookkeeping. Tax treatment depends on your circumstances, so confirm the position with your accountant before filing.
Frequently asked questions
Is health insurance for employees corporation tax deductible?
Generally yes. Premiums a company pays for employee or director cover are normally allowable as a staff cost incurred wholly and exclusively for the trade, reducing taxable profit. The cover remains a benefit in kind for the employee, and the company pays Class 1A NIC at 15% — both treatments apply together.
How much is corporation tax relief worth on health insurance premiums?
19% of the premium at the small profits rate (profits up to £50,000), 25% at the main rate (over £250,000), and effectively 26.5% on profits in the marginal band between. A £6,840 scheme — 10 staff at about £57 a month — saves £1,300 to £1,813 depending on the band.
Can a sole director claim corporation tax relief on their own health insurance?
Generally yes, where the cover forms part of the director's remuneration package: the company deducts the premium, the director is taxed on the benefit in kind, and Class 1A NIC is paid. Claiming the deduction without reporting the benefit is the combination that attracts HMRC attention.
Does the wholly-and-exclusively test block relief on health insurance?
Rarely for genuine employee cover — remunerating staff is a trade purpose, and HMRC guidance treats medical insurance as a normal staff cost. It generally does block relief where cover is provided to non-employees, such as a non-working shareholder, or is essentially personal expenditure routed through the company.
Is Class 1A NIC on health insurance also deductible for corporation tax?
Generally yes. The 15% Class 1A charge on the benefit value is an employer cost of providing remuneration, so it's normally allowable alongside the premiums. On a £10,000 scheme, that means relief on £11,500 in total — worth £2,875 at the 25% main rate.
Is family cover for an employee corporation tax deductible?
Generally yes, when it's provided as part of the employee's package — the premium for their partner and children is a staff cost like the rest. The full family premium is then taxed as that employee's benefit in kind, and the company pays Class 1A on the whole amount.
Do partnerships and sole traders get the same relief on health insurance?
No. Partners, LLP members and sole traders aren't employees, so their own cover is generally personal expenditure with no deduction against profits. Cover they buy for their employees is generally deductible in the normal way. The corporation tax mechanics on this page apply to limited companies.
What records do I need to claim relief on health insurance premiums?
The policy schedule and invoices in the company's name, a per-member premium split from the insurer, evidence the benefit was reported (P11D and P11D(b) copies), and ideally a board minute recording director cover as remuneration. Relief is then claimed through the accounts feeding the CT600 — no separate claim form.
Which corporation tax rate applies to my company's health insurance relief?
Whichever rate your profits fall into: 19% up to £50,000, 25% above £250,000, with marginal relief between producing an effective 26.5% on profits in that band. Thresholds are shared between associated companies, so groups reach the main rate sooner. Your accountant applies the rate — the premium simply reduces taxable profit.