Taxation implications for      company paid healthcare      for large employersELF FUNDED HEALT                H PLA      ...
How Simplyhealth’s products are taxed                                                            Different taxes may apply...
Taxation Examples                                                                                                      Pri...
Cost Plus Insurance Plan                                                                                                  ...
Scheme Agreement          Valley Cabling wanted a cost-efficient flexible scheme to provide cover for their employees, who...
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Taxation implications for company paid healthcare for large employers

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This communication is directed at commercial customers only and is not aimed at consumers.
Please note that these examples are for illustrative purposes only. They are not intended to constitute tax advice, but are a representation of current legal provisions. For specific advice on how this affects your company, you should speak to your Tax Advisor, or your local HM Revenue and Customs office.

Further information on tax rates and how this affects you can be found at: www.hmrc.gov.uk

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Taxation implications for company paid healthcare for large employers

  1. 1. Taxation implications for company paid healthcare for large employersELF FUNDED HEALT H PLA URANCE NS H INS HEALT HEALTH CASH P LANS
  2. 2. How Simplyhealth’s products are taxed Different taxes may apply depending on the type of healthcare cover:The following taxes affect companies who buy healthcare cover for their employees (rates Simplyhealth Health Cash Plan Private Medical Cost Plus Self funded Health Healthcare Plan Insurance Insurance Plan Plansquoted are correct as at April 2012): Option A low cost health A flexible way for A viable alternative for Health Care Trusts andInsurance Premium Tax (IPT) benefit that helps companies with 5 to employers providing Scheme Agreements 2 employees with the 5,000 employees, to private healthcare forIPT is included in insurance contracts and is charged at 6% of the net premium; IPT cannot be cost of their everyday give employees access 400 employees or more: Suitable for large healthcare to medical advice and combines the security employers with morereclaimed. treatment of an insured product than 400 employees with genuinely flexible on cover, these plansNational Insurance Contributions (NIC) bespoke solutions can be fully tailored and expert cost to a company’sEmployers are charged Class 1A NIC at 13.8% on the full value of taxable benefits, or Benefits own requirements, managementin Kind (BIK), provided to their employees. Class 1A NIC will not usually be charged where or included in Simplyhealth’semployees’ earnings, including BIK, are less than £8,500 per annum. Global Trust to receive excellentIncome Tax health cover with the benefit of expert costEmployees receiving company paid healthcare cover will pay tax on the BIK value, which is managementthe total cost to the employer less any amounts repaid by the employee. Tax is charged at the Taxes:employee’s highest marginal tax rate (i.e. 20%, 40% or 50%1), which is determined by total Valued Added Tax Does not apply Does not apply Does not apply Applies at 20% onearnings including benefits. (VAT) policy administration servicesCorporation Tax (CT) Insurance Premium Included in the Included in the Included in the Does not apply 3Companies pay Corporation Tax on their profits at a main rate of 24% (small profits rate 20%, Tax (IPT) premium at 6% premium at 6% premium at 6%April 2012 – March 2013). The costs of providing employee benefits are allowed as deductionsfrom profit for CT purposes, and so reduce the amount of CT payable. National Insurance Applies to the total Applies to the total Applies to the total Applies to the total Contributions (NIC) amount funded by the amount funded by the amount funded by the amount funded by the employer, at 13.8% employer, at 13.8% employer, at 13.8% employer, at 13.8%Value Added Tax (VAT)VAT is charged at 20% on non-insurance Administration Services; many companies are able to Income Tax Applies to the Benefit Applies to the Benefit Applies to the Benefit Applies to the Benefitreclaim the VAT they pay through their VAT return. in Kind (BIK) value, at in Kind (BIK) value, at in Kind (BIK) value, at in Kind (BIK) value, at the employee’s usual the employee’s usual the employee’s usual the employee’s usual rate rate rate rate1 45% from 6 April 2013 Corporation Tax (CT) Applies to Total Applies to Total Applies to Total Applies to Total Taxable Profits as Taxable Profits as Taxable Profits as Taxable Profits as reduced by BIK and reduced by BIK and reduced by BIK and reduced by BIK and NIC paid by company NIC paid by company NIC paid by company NIC paid by company at company’s relevant at company’s relevant at company’s relevant at company’s relevant rate rate rate rate Benefit in Kind (BIK) Premium paid by Premium paid by Total contract sum Total contract sum calculated as: employer less amounts employer less amounts (including Stop Loss (including Stop Loss paid for by employee paid for by employee cover if applicable) cover if applicable) divided by number of divided by number of employees covered, employees covered, apportioned as per apportioned as per benefit levels granted. benefit levels granted. The BIK is reduced by The BIK is reduced by any amounts paid by any amounts paid by employee employee Simplyhealth’s Trust and Scheme Agreement arrangements are all fully compliant with Her Majesty’s Revenue & Customs guidance under 2 EIM21772 Trust / Scheme agreements sometimes have Stop Loss Insurance attached, this is a separate insurance policy and not part of the Trust / 3 Scheme agreement itself.
  3. 3. Taxation Examples Private Medical Insurance (PMI)Please consider the following as illustrations only of the overall cost to a company of providing their employees Mr Jones is a manager who earns £45,000 a year and pays tax at 40%. He is provided with a company fundedwith a healthcare benefit as a staff benefit, including the potential saving in corporation tax after deducting from private medical insurance scheme that costs his employer £1,060 a year inclusive of IPT. The information belowprofit as a business expense. shows the taxation cost and benefit effects for both Mr Jones and his employer. Amount due Calculated asHealth Cash Plan Cost to Mr JonesSmith & Sons provide all of their employees with a company paid health cash plan costing £2 per employee per Income Tax (annual amount) £424.00 40% of cost to employer (BIK value)week, or £104 per year. The information below shows the usual taxation cost and benefit effects for both the Income Tax – monthly amount £35.33employer and its employees. Total cost of providing the Amount due Calculated as Total cost of providing PMI Health Cash Plan Net premium £1,000.00 Net premium £98.11 Insurance Premium Tax £60.00 6% of net premium Insurance Premium Tax £5.89 6% of net premium Total premium due to insurer (BIK value) £1,060.00 Total premium due to insurer (Benefit in £104 Cost of Class 1A NIC £146.28 13.8% of cost to employer Kind value) Cost to employer before CT saving £1,206.28 Cost of Class 1A NIC £14.35 13.8% of cost to employer Less: Corporation Tax saved (£289.51) 24% of gross premium plus NIC paid Cost to employer before CT saving £118.35 Net cost to employer £916.77 Less: Corporation Tax saved (£28.40) 24% of gross premium plus NIC paid Net cost to employer (per employee) £89.95 Cost to basic rate taxpayer Income Tax (annual amount) £20.80 20% of BIK value Income Tax - monthly amount £1.73 Cost to higher rate taxpayer Income Tax (annual amount) £41.60 40% of BIK value Income Tax – monthly amount £3.47 Cost to additional rate taxpayer Income Tax (annual amount) £52.00 50% of BIK value 1 Income Tax – monthly amount £4.331 45% from 6 April 2013
  4. 4. Cost Plus Insurance Plan Healthcare TrustThe Jones Partnership chose a bespoke cost plus insurance plan to include cover for existing and retired partners Marwell Aeronautical Ltd wanted to provide their employees with their own unique private health cover. Theyfor benefits agreed with their insurer. They wanted to ensure that the total cost of health cover did not exceed designed their plan to include benefits specifically to cover the particular needs of their workforce. They wanted£1.5m and so agreed an Aggregate Stop Loss insurance (“ASL”) at 120% of the estimated claims fund. the plan to be their own and decided to use a Healthcare Trust to provide their employees with this cover. The company decided not to purchase aggregate stop loss cover. The costs and benefits to the company and itsThe table below shows the usual taxation cost and benefit effects for the Partners. employees under the Trust arrangement are as shown below. Total Plan cost: 200 Partners, 1,000 Expected annual Estimated Total Claims Cost: £1,066,575 Total Plan cost: 500 employees Expected annual Estimated Total Claims Cost: £450,000 employees (estimated figures only, cost: £1,200,000 Aggregate stop loss premium: £17,500 (estimated figures only, these are bespoke cost: £471,500 Admin fee: £21,500 these are bespoke plans and individually calculated as: Admin fee: £48,000 plans and individually underwritten) calculated as: underwritten) VAT @ 20% on admin fee: £4,300 IPT @ 6%: £67,924 Plan cost per employee £951.60 Plan value per Member £1,000.00 NIC 13.8% 5 £131.32 13.8% of cost to employer Taxable as income from Partnership / BIK £1,000.00 Less Corporation tax saved 5 (£259.90) 24% of gross premium plus NIC paid Cost to Partner who is Basic Rate Net cost to employer per employee £823.02 Taxpayer Income Tax (annual amount) £200.00 20% of cost to Partnership (inc IPT) Benefit in kind – P11D value £951.60 NIC (annual amount) £90.00 9% of cost to Partnership (inc IPT) Cost to Basic Rate Taxpayer Total tax payable £290.00 Income Tax (annual amount) £190.32 20% of cost to employer Cost to Partner who is Higher Rate Income Tax – monthly amount £15.86 Taxpayer Cost to Higher Rate Taxpayer Income Tax (annual amount) £400.00 40% of cost to Partnership (inc IPT) Income Tax (annual amount) £380.64 40% of cost to employer NIC (annual amount) £20.00 2% of cost to Partnership (inc IPT) Income Tax – monthly amount £31. 72 Total tax payable £420.00 Cost to Additional Rate Taxpayer Cost to Partner who is Additional Rate Taxpayer Income Tax (annual amount) £475.80 50% of cost to employer 4 Income Tax (annual amount) £500.00 50% of cost to Partnership (inc IPT) 4 Income Tax – monthly amount £39.65 NIC (annual amount) £20.00 2% of cost to Partnership (inc IPT) 4 45% from 6 April 2013 5 All tax rates are the normal main rates as at April 2012. The government may announce a change in these rates. P11d liabilities are usually Total tax payable to purchase £520.00 adjusted in the subsequent year to reflect the difference between the estimated cost of the plan and the actual final cost.4 45% from 6 April 2013 Amounts paid on behalf of employees of the Partnership are deductible as expenses of the Partnership. For employees of the Partnership the tax position is the same as in example 1 or 2 above. P11d liabilities are usually adjusted in the subsequent year to reflect the difference between the estimated cost of the plan and the actual final cost.
  5. 5. Scheme Agreement Valley Cabling wanted a cost-efficient flexible scheme to provide cover for their employees, who have a right to healthcare benefits included in their employment contracts. They chose a Scheme Agreement with additional Aggregate Stop Loss cover to limit their maximum risk if claims exceeded 120% of the expected claims cost. The costs and benefits of this are shown below. Total Plan cost: 2,000 employees Expected annual Estimated Total Claims Cost: £1,800,000 (estimated figures only, these are bespoke cost: £1,888,550 Aggregate Stop Loss £17,500 plans and individually priced) IPT @ 6% on Stop Loss £1,050 calculated as: Admin fee: £70,000 VAT @ 20% on admin fee: £14,000 Plan cost per employee £944.28 NIC 13.8% 5 £130.31 13.8% of cost to employer Less: Corporation Tax saved 5 (£257.90) 24% of gross premium plus NIC paid Net cost to employer per employee £816.69 Benefit in kind – P11D value £944.28 Cost to Basic Rate Taxpayer Income Tax (annual amount) £188.86 20% of cost to employer (inc IPT) Income Tax – monthly amount £15.74 Cost to Higher Rate Taxpayer Income Tax (annual amount) £377.71 40% of cost to employer (inc IPT) Income Tax – monthly amount £31.48 Cost to Additional Rate Taxpayer Income Tax (annual amount) £472.14 50% of cost to employer (inc IPT) 4 Income Tax – monthly amount £39.35 4 45% from 6 April 2013 5 All tax rates are the normal main rates as at April 2012. The government may announce a change in these rates. P11d liabilities are usually adjusted in the subsequent year to reflect the difference between the estimated cost of the plan and the actual final cost. This communication is directed at commercial customers only and is not aimed at consumers. Please note that these examples are for illustrative purposes only. They are not intended to constitute tax advice, but are a representation of current legal provisions. For specific advice on how this affects your company, you should speak to your Tax Advisor, or your local HM Revenue and Customs office. Further information on tax rates and how this affects you can be found at: www.hmrc.gov.uk www.simplyhealth.co.uk/socialmedia Simplyhealth is a trading name of Simplyhealth Access, registered and incorporated in England and Wales, No.183035. Registered office:1203044 Hambleden House, Waterloo Court, Andover, Hampshire, SP10 1LQ. Authorised and regulated by the Financial Services Authority. Your calls may be recorded and monitored for training and quality assurance purposes.

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