Taxes

Is Health Insurance Deductible If You're Self-Employed?

Andre Spiteri
Nurse talking to woman: Is health insurance deductible?

Private health insurance isn’t obligatory in the U.K. That said, if you’re self-employed and you can afford it, it’s worth considering. Here’s what to know about a health insurance deduction for the self-employed.

Why would you want private health insurance?

Private health insurance gives you more choice and control on the level of care you can get. And it allows you to avoid the long waiting times common on the public health service. Which means you’ll get back to work sooner. Yet, it isn’t always tax deductible.

Self-employed health insurance deductions: The NHS

In the U.K., you can get free medical treatment through the National Health Service, or NHS. The government funds the NHS with tax money. However, you can access it free of charge even if you don’t pay taxes, for example, because you earn less than the threshold.

To qualify, you must be ordinarily resident in the U.K. In practice, this means that:

  • You’re a British citizen, an EU citizen or have a valid visa, known as leave to remain
  • You live and work in the U.K.

How does private health insurance work?

You can buy private health insurance from multiple providers around the U.K. There are three types:

Health insurance policies

You pay a monthly premium and your insurance provider covers your medical costs if you fall ill. Consider that health insurance policies are typically the most expensive.

Hospital cash plans

These are cheaper than health policies. Yet, they only pay a fixed amount in case of a hospital stay.

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Critical illness insurance

These policies pay out a one-time lump sum if you have a life-threatening illness such as cancer or heart disease.

Most insurance policies have a deductible or excess. This is a sum of money you have to pay out of your own pocket.

As a rule, you’ll still need a written referral from your NHS doctor. This is free — the doctor can’t charge you for it. Once you get treatment, the private provider will issue an invoice. Your insurance company will settle the bills less any deductible.

How do I deduct health insurance from my taxes as a sole trader?

As a sole trader, HMRC lets you deduct expenses from your overall tax bill only if they are wholly, exclusively and necessarily business-related. Private health insurance also has a personal benefit. So, as a rule, you cannot deduct it from your taxes.

That said, you may be able to deduct certain costs if you can prove you underwent treatment solely and exclusively for work-related reasons.

This isn’t always easy. Since HMRC may fine you for deducting something you shouldn’t, it’s best to get professional advice from a certified public accountant.

How do I deduct health insurance from my taxes as a limited liability company?

If you pay for your health insurance through your limited liability company, you’re liable on two fronts:

  • As the company
  • As an employee of your company

The company has to:

  • Report the cost on a P11D form
  • Pay Class 1A National Insurance at 13.8 percent of the cost

So, if your company pays £400 a year in insurance, it owes the HMRC 13.8 percent of that. That would be £55.20 in Class 1A National Insurance.

Yet, your company doesn’t have to report to HMRC if it only pays for:

  • Annual health check-up
  • Eye tests, glasses or contact lenses required by health and safety law
  • Insurance or treatment for work-related injuries or diseases
  • Treatment while you’re working abroad

Unfortunately, as an employee of your company, health insurance counts as a benefit in kind. In other words, the cost of the policy counts as income and attracts tax at the same rate as your salary.