Medical Benefits in Kind (BIKs) and their tax implications

Many employers offer their staff various benefits outside of their agreed salary package to attract and retain staff, but also to improve their well-being. As part of these benefits packages, some employers may want to provide their employees with medical and/or health related benefits. However, it is important that the tax implications are adequately considered.

This blog will focus on the common types of medical benefits that employers offer to their staff and the associated tax consequences in the hands of the employee.

What are Benefits in Kind (BIKs)?

BIKs are goods or services provided to employees (or directors) at no or at a significantly reduced cost to the employee.

These benefits form part of an employees’ total remuneration package, in addition to their agreed salary, and therefore must be considered for tax purposes. Think of them as non-salary rewards.

Generally, the value of the BIK is treated as additional earnings received and is subject to income tax in the hands of the employee. The tax arising will depend on the overall level of the employee’s income.  

There are a variety of medical related costs that an employer may choose to pay for on behalf of their staff which are included below, however not all of them are considered Benefits in Kind.

Common Medical BIKs and Their Tax Implications

• Private Medical Insurance: The provision of private healthcare is considered a BIK. The value of the BIK that will be subject to income tax is the cost of the premium paid by the employer. The amount assessable as a BIK will include amounts paid by the employer relating to additional family cover and deductions will be given if the employee contributes towards the premium.

• Dental treatment: The cost of providing the treatment will be assessable as a BIK and taxed in the same manner as discussed above.

• Medical operations/procedures: In some instances, these can be provided to employees as a ‘tax free’ benefit – in other words, they are not considered a BIK. However, for this to be the case, the injury or illness leading to the need for medical treatment must have arisen in the course of the employee performing their employment duties. Treatment provided for injuries and illnesses that did not occur as a result of the employment will be considered a BIK and taxed accordingly.

• Medical Treatment outside the UK: Similar to the above, if an employee sustains an injury or develops an illness whilst overseas, the cost of treatment will only be considered a tax free benefit if the injury or illness arose as a result of the employee performing their employment duties. Otherwise, normal BIK rules would apply and the cost of treatment will be assessable as a BIK.

• Medical treatment to help an employee return to work: For employees that have been absent from work for an extended period of time due to injury or ill health (regardless of whether the cause related to the employment), subject to certain conditions, an employer can pay up to £500 in costs for an employee to return to work without it being treated as a BIK.

• Optical treatment and expenses: If an employee is required to use a computer screen as part of their day-to-day work, employers can cover the cost of an eye test and corrective glasses/lenses without it being treated as a BIK. This will depend on the type of work being performed by the employee. The costs covered must not be excessive (e.g. expensive designer glasses).

• Annual health screenings or medical checks: These are generally not considered to be a BIK providing that: the employee is only provided with one heath screening or medical check-up per tax year; and that they are only provided for the employee, not their family or household. Additional screening or checks provided by the employer will be treated as a BIK. Providing employees with a voucher for an annual flu vaccination would fall within this exemption.

Important Considerations:

• Employers who wish to reward and look after their staff should consider the tax-free medical benefits they are able to provide without giving rise to unwanted tax implications.

• The costs incurred by a company in providing employees with benefits are tax deductible for the company, so they will receive corporation tax relief on the expenditure.

• Employers’ National Insurance payable on staff benefits, reported via a P11D(b), is also deductible for tax purposes.

• Medical benefits must generally be arranged and paid for by the employer, not as a reimbursement to the employee. The reimbursement of costs paid by the employee are generally taxable as earnings through the payroll.

• If you are unsure about the tax implications of a specific medical benefit, it is always best to seek professional advice from a qualified tax advisor.

If you would like any further advice, please get in touch with a member of our tax team on 01903 234094.

Disclaimer: This blog post provides general information only and should not be considered tax advice. Please consult with a qualified tax professional for guidance specific to your situation.