BIK Private Medical Insurance

I've just attended an HMRC webinar on payrolling benefits. In it, it suggests that when a private medical insurance premium changes mid tax year, the BIK needs to be adjusted so that the employee pays tax on the full value of the new premium value for that tax year. Previously, we have always pro-rated these amounts so that the employee is paying tax on the value of the benefit received. Is there clear guidance from HMRC on the correct way to do this? Thanks, Dave

Hi ,
 

The benefit charge is based on the cost to the employers in the tax year so if the premium changes this you would adjust it accordingly so potentially pro-rataing. Thank you .

Thanks for the response, but I'm afraid I'm still unsure which is the 'correct' method. With the two scenarios, which would be correct? 1. (example provided by HMRC during webinar) Medical Insurance premium increases from £450 to £500 in September. BIK had previously been added at £37.50/m (450/12), and 5 pay dates have occurred. Therefore the new BIK should be 500 less the amount already paid (37.50*5=187.5), so £312.5. With 7 pay dates remaining, the new monthly BIK amount should be £44.64. This reflects the cost to the employer during the tax year. 2. (how we have done it previously) If the premium increases mid year from £450 to £500, the monthly BIK amount is adjusted to £41.67 (500/12). To achieve this, the 'annual amount' entered into payroll software will be £479.19, with £187.50 made good. This reflects the value of benefit received by the employee each month, but doesn't align with the employer cost within the tax year. It seems like there's a question of should the taxable benefit be assessed as what is paid by the employer within that tax year, even if it is an amount paid up front for the next 12 months, or should the value of the benefit per month be added to the employee's pay slip. The above example shows relatively minor adjustments. But if there is an increase to an insurance premium in March of several hundred pounds, the HMRC example would result in a massive BIK value for March to adjust the previous 11 months, before returning to a much lower value in April. This doesn't seem correct for a benefit that is charged to the employer on a per month basis, with an employee leaving resulting in a refund of their unused premium.

Hi ,
 

I would suggest in order to discuss this in more detail and to ensure everything is clear for you, you contact us on 0300 200 3200  . Thank you .