When you set up as a limited company contractor, you will encounter a myriad of different rules governing expenses. Some expenses rules are clear-cut, whereas others are more complex.
Many permanent employees have access to gym facilities, and even more, will receive some kind of health or private medical insurance as part of their employment package.
When you make the transition from permanent to contract, you may well wonder if you can take out health-related products via your limited company.
Unfortunately, the golden rule is that you can only claim for expenses that have been incurred wholly and exclusively for business purposes. Although your company can pay for these expenses, you will be taxed for the privilege.
Benefit in Kind liabilities
Derek Kelly from ClearSky Accounting explains:
“Health insurances and gym memberships can both be paid directly by the company and the full costs are deductible when arriving at the taxable profits for the year.
“However, a benefit in kind will arise for the employee/director based upon the amount paid by the company and tax will be payable at either 20%, 40% or even 45% dependent on the individual’s other income.
“In addition, the company incurs a Class 1A National Insurance charge equivalent to 13.8% on the amount paid for the insurance or membership.”
So, your limited company can pay for the costs of health insurance, but you will incur a personal tax charge for the benefit.
It is possible that you are still better off overall by paying for such costs via your own limited company than personally. You will need to check with your accountant to compare the overall financial cost, as this will depend greatly on your overall personal income levels.
Exceptions to the rules
There are a few exemptions to this rule – eye tests, annual health checks for directors and employees (such as health assessments), and overseas medical treatment do not incur a benefit in kind charge.
If you pay for both UK and overseas medical treatment via your company, only the overseas part will be exempt from benefit in kind charges.
As ever, you should check with your accountant if you have any expense-related questions.