Should you pay for health insurance via your limited company or personally?

Private medical insurance (PMI) covers the cost of private medical care if you become ill. For limited company directors, premiums can be paid either personally or through the company. Each option has different tax consequences.

If the company pays the premium and the cost is offset against a credit balance on your director’s loan account (money the company owes you), the position is broadly similar to paying personally.

However, if the payment creates or increases an overdrawn director’s loan account, the company may face a section 455 tax charge (currently 33.75%). This is only recoverable once the loan is repaid.

The examples below compare the rough cost of paying for PMI personally versus via your limited company.

We’ve used a 22% effective Corporation Tax rate, which is typical for many small contractor companies, and Class 1A National Insurance at 15%.

If you pay from your personal income

If you pay PMI premiums personally, there is no Benefit in Kind. But the cost must be met from income that has already been taxed, often via dividends.

Assume an annual premium of £1,000, funded from dividend income:

• If your dividends are taxed at the basic dividend rate (8.75%), you would need dividends of approximately £1,096 to cover the £1,000 cost.
• If your dividends are taxed at the higher dividend rate (33.75%), you would need dividends of around £1,509.

Because dividends are paid from post-Corporation Tax profits, the company must earn more than this amount before tax. At a 22% effective Corporation Tax rate:

• £1,096 of dividends requires roughly £1,405 of pre-tax company profit.
• £1,509 of dividends requires roughly £1,935 of pre-tax company profit.

Note: From April 2026, dividend tax rates on the basic and higher bands are due to increase by 2 percentage points. If you fund PMI personally using dividends, that change will increase the post-tax cost.

Paying via your limited company

If your limited company pays the premium and treats it as a business expense, private medical insurance is treated as a taxable Benefit in Kind.

In practice, that means the company pays the premium, the director is taxed personally on the benefit, and the company also pays Class 1A National Insurance on the value of the benefit.

Using the same £1,000 premium:

• Premium paid by the company: £1,000
• Class 1A National Insurance at 15%: £150
• Total cost before Corporation Tax relief: £1,150

At a 22% effective Corporation Tax rate, the tax relief on £1,150 is £253, giving a net company cost of £897.

The director is then taxed personally on the £1,000 benefit. For a higher rate taxpayer, this creates a personal tax charge of £400.

That £400 tax still has to be funded. If it is met from higher rate dividends (33.75%), the director would need dividends of approximately £604.

At a 22% effective Corporation Tax rate, that requires around £774 of additional pre-tax company profit.

On these assumptions, the total effective gross cost to the company is approximately £1,671 in pre-tax profit terms, made up of the net company cost of £897 plus the extra profit required to fund the personal tax charge.

Which option is cheaper?

Using these assumptions:

• Paying personally (higher rate dividends): around £1,935 of pre-tax company profit
• Paying via the company (Benefit in Kind route): around £1,671 of pre-tax company profit

In our example, paying through the company can be slightly cheaper overall for a higher-rate taxpayer, but the difference is often marginal. Is it worth the additional steps and paperwork?

• You must report the Benefit in Kind.
• Employers’ Class 1A National Insurance is levied at 15%.
• There can be director’s loan account implications if the premium is not handled cleanly
• Dividend tax rates are due to rise by 2 percentage points in April 2026 on the basic and higher bands

These figures are illustrative, and the result may vary based on your income level, tax bands, and your company’s tax treatment.

We recommend that you consult your accountant to determine the best approach.

Read our guide to private medical insurance here.

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