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HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
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Employment income: medical expenses and insurance

An employer may meet the cost of employees’ medical expenses or arrange for them to be met under an insurance policy. The following table shows the tax treatment that applies to the various ways that the employer may do this.

Circumstances Tax treatment
The hospital etc bills the employee for the treatment. The employer pays the hospital. The employer has discharged the employee’s debt, so the amount paid is taxable as earnings within Section 62 ITEPA 2003. See EIM00580. This applies to all employees and office holders.
The employer gives the employee the money to pay the hospital etc. bill. The payment counts as earnings within Section 62 ITEPA 2003. This applies to all employees. See EIM00520 onwards.
The employer arranges with the hospital to meet the bill directly - in other words, the bill is in the name of the employer, not the employee. (The employer may pay the bill out of its own funds, or out of the proceeds of an insurance policy under which the employer is the insured person. The tax result is the same in either case.) No tax charge arises on lower paid employees for 2015/16 and earlier only. They have not received cash, or “money’s worth” (see EIM00530) so the employer’s payment is not “earnings” within Section 62 ITEPA 2003. (Lower paid employees are those whose total pay, expenses and benefits (including the cost of the medical treatment) is at a rate of less than £8,500 a year, see EIM20100).
  All other employees, and directors, are chargeable under Section 203 on the amount paid by the employer. See EIM21761.
The employer arranges and pays for a group insurance policy under which employees (and sometimes their families) are the insured persons. The employees’ medical bills are then met directly by the insurance company. There is no tax charge on lower paid employees for 2015/16 and earlier only. (Lower paid employees are those whose total pay, expenses and benefits (including a proper proportion of the employer’s medical insurance payment) are at a rate of less than £8,500 a year, see EIM20100).
  All other employees, and directors, are chargeable under Section 203 on the premiums paid by the employer. See EIM21761.
The medical treatment is obtained or the bills are paid by means of vouchers provided by reason of the employment. All employees are chargeable under Section 87 ITEPA 2003. See EIM16140.
The employer sets up a trust fund to pay employees’ medical bills. See EIM21772.
The employer pays for periodic medical check-ups for employees. See EIM21765
The employer bears the cost of medical treatment abroad where the need for the treatment arises whilst the employee is on duty abroad. See EIM21766.
The employer bears the cost of recommended medical treatment to help the employee return to work after a period of absence due to injury or ill health See EIM21774.