Insured scheme or healthcare trust: the structure decides whether Insurance Premium Tax applies

Insurance Premium Tax (IPT) is added to what an insurer charges you for cover, in the same way VAT is added to many other purchases. HMRC Notice IPT1, at paragraph 5.4.1, sets out what counts as the premium for this purpose on an insured scheme.

The notice treats every element of the payment you make to the insurer as premium. That includes the core cost of cover and any additional charge bundled into the same payment, such as an administration fee the insurer adds on. None of it is carved out as something other than premium, so none of it sits outside the tax.

For an employer working out what an insured scheme will cost, this means the tax applies to the whole amount paid to the insurer (HMRC Notice IPT1 §5.4.1, read 2 October 2026).

A healthcare trust is an arrangement an employer sets up to pay for employees' medical costs directly. The payment funds the trust itself, not an insurance premium, so HMRC Notice IPT1 does not bring it into charge for Insurance Premium Tax. An insured scheme, by contrast, pays Insurance Premium Tax at the standard rate of 12% on the whole premium (GOV.UK, read 4 October 2026).

Why one trust's terms rarely match another's

A trust operates under its own trust deed, with trustees, often including the employer, deciding what the fund pays for and how claims are assessed. Some trusts buy stop-loss insurance above a set claims level to cap the employer's exposure; others carry the full cost themselves. Because each trust is built to the employer's own rules, two trusts covering similarly sized groups can settle claims on different terms.

That is also why running a trust takes more ongoing attention than paying an insured premium. The employer is carrying whatever claims risk the trust has not reinsured, and it is the trust deed, not an insurer's policy document, that sets out what happens when a claim comes in.

Most employers start with an insured scheme, because an insurer takes on the cost of staff claims in exchange for a fixed premium. That arrangement works at almost any headcount, which is why it is the usual starting point for a company setting up its first group scheme.

Why headcount changes the calculation

A healthcare trust shifts that risk back to the employer. The employer (or a group of trustees acting for it) funds staff claims as they come in, from a reserve set aside for that purpose. That only works sensibly once there are enough employees for claims to average out over a year. With a small group, one serious claim can swing the year's cost far more than a fixed premium ever would. How the available underwriting options change with headcount is covered on the group underwriting page.

Where the cost sits, not just how much

An insured premium has a known cost before the year starts, and the insurer absorbs whatever staff actually claim. A trust removes the insurer's margin and the tax treatment that comes with paying a premium, but in exchange the employer carries the year-to-year variation in claims directly. The comparison is less about which figure is smaller and more about who is holding the risk if claims run high.

What it means for the person running the scheme

With an insured scheme, the insurer administers claims, sets the renewal premium, and the employer's main job is reviewing those terms each year. A trust needs ongoing governance: someone has to set the rules for what the trust will pay, decide how claims are assessed, and usually appoint an administrator to handle the day-to-day processing. That governance does not disappear once the trust is set up; it continues for as long as the trust runs.