Can your company pay for a medical check-up tax free?

Not many directors know this, but your limited company can arrange and pay for an annual health screening and medical check-up for you as a director, and for your employees too.

Get it right and:

1. It's completely tax free for you and your staff, no income tax or NIC to pay
2. Your company gets tax relief on the cost as a normal business expense

What does HMRC's exemption cover?

HMRC's Employment Income Manual says the cost to an employer of providing a health screening assessment or a medical check-up for employees is not treated as a chargeable benefit on those employees. Its guidance for employers lists periodic medical checks or health screening among the health benefits you do not have to report or pay tax and National Insurance on.

The two terms have their own meanings. In the manual, a health screening assessment is an assessment to identify employees who might be at particular risk of ill health, for example a questionnaire or telephone interview about general health and lifestyle. A medical check-up is a physical examination by a health professional, carried out only to determine the employee's state of health. HMRC says the employee does not need to have had a screening first for the check-up to qualify.

On the company's side, HMRC's Business Income Manual tells its officers to allow expenditure incurred directly on the welfare of employees, unless it is of a capital nature.

How many checks are covered each year?

A couple of things to keep it compliant:

1. It only covers one health screening and one medical check-up per person, per tax year. Not ongoing medical care or blood tests, that falls outside the exemption entirely.
2. There's no price cap, but the cost needs to be reasonable.

HMRC's manual puts the limit at no more than one health screening assessment and no more than one medical check-up in any tax year, and that has been the position since 6 April 2009. Its page on the exemption sets no monetary limit.

If you are a director of several companies in the same group, the manual says the limit of one screening and one check-up is applied across the group as a whole.

What falls outside the exemption?

HMRC's manual says medical checks that are connected to the provision of medical treatment are not covered by the exemption.

Check-ups for members of an employee's family or household are a benefit chargeable on the employee, unless the family member is also an employee of the company providing the check-up.

HMRC's guidance for employers also says you do have to report medical benefits that are part of a salary sacrifice arrangement.

What happens if a health benefit is not exempt?

HMRC's guidance says it must be reported, and the treatment depends on who arranges and pays. If you arrange and pay the provider directly, you report it on form P11D and pay Class 1A National Insurance on the value. If your employee arranges it and you pay the provider, it goes on form P11D and the value is added to their earnings for Class 1 National Insurance. If you reimburse your employee's costs, the payment counts as earnings, with PAYE tax and Class 1 National Insurance through payroll.

Does it matter how the company provides the check?

HMRC's manual describes the exemption in terms of the employer providing the screening or check-up. It says the exemption also applies where the employer provides a non-cash voucher or credit token for the employee to use to obtain one.

Get it structured properly, and it's a genuinely tax-free benefit for you and your team, and a smart one to have in place before it slips your mind at year end.

Other benefits have their own exemptions and their own conditions. We cover one mobile phone per employee and small gifts under the trivial benefits rule separately.

Exemptions and reporting rules change, and the treatment depends on what is provided and how it is paid for, so this is general information rather than advice on your own arrangements. If you want your staff benefits checked, talk to us.