What group PMI costs each employee and the employer in tax

When a company buys private medical cover for someone on the payroll, HMRC does not treat the premium as a cost the business has simply absorbed. It treats it as something the employee has received, and taxes it as such. The term for this is a benefit in kind, and it is taxed through the employee's own position.

The employee pays income tax on the value of the premium at their own rate. HMRC collects this by adjusting the employee's tax code, reducing the amount of pay that is tax-free so the tax due is spread across the year.

Family cover counts too

Where the scheme also covers a spouse, partner or children, the premium paid for them is added to the employee's own benefit for tax purposes, not billed or taxed separately. HMRC states this in its Employment Income Manual (EIM21762, read 2 October 2026). An employee who takes up family cover should expect a larger adjustment to their tax code, reflecting the full premium paid on their behalf.

When a company pays the premium for an employee's medical cover, that premium is a benefit the employer has to tell HMRC about. It does this on a form called a P11D, filed for each employee who receives the cover.

Alongside the P11D, the employer pays Class 1A National Insurance on the value of the benefit. Employers pay Class 1A National Insurance on benefits such as medical insurance (GOV.UK, read 4 October 2026). For the 2026 to 2027 tax year, that rate is 15% (GOV.UK, read 2 October 2026).

Where this applies

Where an employer pays the insurer directly for the cover, it reports the benefit on form P11D and pays Class 1A National Insurance on its cost (GOV.UK, read 2 October 2026). This is a separate charge from the income tax the employee pays on the same benefit through their own tax code. The two are worked out on the same figure, but they sit with different parties.

Right now, the tax on an employee's group PMI premium is collected through their tax code. The employer reports the value of the benefit on form P11D after the tax year ends, HMRC adjusts the employee's code, and the extra tax comes out of their pay gradually over the following year. There is a lag built into how the system works: the tax an employee pays in any given month does not necessarily match the benefit they received that month.

What HMRC has announced

HMRC has announced that from 6 April 2027, employer-paid medical benefit, along with the Class 1A charge that goes with it, will be reported through payroll in real time (HMRC policy paper, read 2 October 2026). In practice, that means the tax on the benefit is worked out and collected in the same pay period the benefit is provided.

What stays the same

The change is about timing. The premium remains a taxable benefit in kind for the employee and remains chargeable to Class 1A National Insurance for the employer. Payrolling does not create a new tax, remove an existing one, or change who owes it. It changes when the money moves.

What has not happened yet

The legislation to put this into effect was due at the 2026 Budget. As things stand, this is HMRC's stated policy. A founder or director planning payroll changes for 2027 should treat the date as the one HMRC has given, while checking GOV.UK for confirmation once the legislation itself is published.

The tax cost of group PMI for both employer and employee, including how it is worked out today, is set out separately on this site.

HMRC exempts one part of healthcare provision from income tax: recommended medical treatment that helps an employee return to work after illness or injury, up to £500 in a tax year (ITEPA 2003 s.320C, read 2 October 2026). Where a scheme pays for treatment of that kind, the cost sits outside the employee's taxable income.

What the exemption covers

The exemption applies to the treatment itself, such as a course of physiotherapy or a counselling programme recommended to get someone back to work. It is a narrow provision aimed at occupational health support. It was never written to cover the cost of belonging to a health scheme in the first place.

Why the premium is a separate question

The premium you pay for an employee's place on a group scheme buys access to cover. HMRC treats that premium as a benefit in kind whether or not the employee ever makes a claim, and s.320C has no bearing on it. The exemption reduces tax on qualifying treatment costs paid under that section; it does nothing to the premium sitting alongside it.

Treating the two as the same thing leads to the wrong conclusion, that providing group cover carries some built-in tax relief on the premium itself. It doesn't. The premium is taxed in full as a benefit in kind, and the £500 exemption only ever applies to the separate category of treatment it was written for.

An insured scheme carries a second tax charge that sits inside the premium itself, before any benefit-in-kind question for the employee even arises. Insurance Premium Tax (IPT) is charged on general insurance contracts, including private medical insurance, at the standard rate of 12% (GOV.UK, read 4 October 2026).

Who pays it

The insurer adds IPT to the premium and collects it from the employer as part of the amount invoiced, in the same way VAT is built into the price of many other business purchases. The employer does not file a separate return for it or pay it to HMRC directly on a group scheme. It is already paid by the time the premium reaches the employer's account.

Why it is separate from the employee's tax charge

IPT is a tax on the insurance contract. The employee's income tax and the employer's Class 1A National Insurance are calculated on the value of the benefit the employee receives, which is worked out from what the employer pays for the cover. Because IPT is part of what the employer pays, it has already affected the premium before that benefit value is set.

Where a healthcare trust differs

A healthcare trust is not an insurance contract, so it does not attract IPT in the same way an insured scheme does. This is one of the reasons a trust is considered as an alternative structure for some groups, alongside the other differences in how it is run and how claims are met. The insured scheme or healthcare trust comparison sets out those differences in full.