Private Health cover - Benefit In Kind

dfarry

I work for an organisation that has an arrangement with a private company offering healthcare insurance (similar to Bupa etc.). To entice new members they offer 12 months free cover (which everyone goes for obviously) and the the following 12 months at half price before reverting to the standard rate in the third year.

This all sounds well and good but I never even considered the tax implications and NONE were highlighted. Some 13 months on and now that I am being charged the half price rate I decided to cancel but they have asked me to sign this form stating:-

I have recently received your letter stating that you wish to withdraw from the XXXXXXXX Healthcare Scheme.

I do have to point out that you have received your first free year of membership (purely for yourself) but not completed your second year at half-price of age-band one which is our two-year special offer. Your first free year could be classed as a benefit in kind and there may be a tax implication. The idea of the two-year special offer is that you remain a member of the scheme for at least two years.
Whilst you can withdraw I do have to draw the tax implication to your attention. Therefore, before your instruction is carried out, please would you either sign and return the below HM Customs & Excise Income Tax Declaration or alternatively if you remain in the scheme for the duration of the two-year deal, no tax liability will arise.

I hope this clarifies the situation for you. We await your response.

I, the undersigned member, understand that by signing this disclaimer I am liable for the payment of income tax due on the free membership of the XXXXXXXX Healthcare Scheme and understand that I have received a benefit in kind. I confirm that I wish to cancel my subscription.

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I have replied with:

I am a little unhappy in that a potential tax implication was not highlighted (as I remember), when my membership began.

As a standard rate taxpayer can you please confirm the extent of this liability (the total benefit in kind for the period of my membership) and also how would this be notified to the Inland Revenue. I believe this is usually done by payroll departments with form P11D.

Surely a benefit in kind exists whether or not I remain a member for two years if the premium is supplemented to any extent, can you please explain why this might not be the case.

I'm being a bit cynical perhaps but they clearly want me to stay a member for as long as possible... but this will continue increase any benefit in kind liability.... that's bordering on deceit as far as I am concerned.

Is there any truth to the claim that the liability would not exist if I remain in the scheme until the end of year two?

Thanks

fengirl_2

Whether you sign the letter or not, you are still liable to income tax on the benefit in kind - it is never the employer's liability, so I think they are trying to scare you.

dfarry

Hi Fengirl, thanks for the reply... sorry for my late reply I thought I had already done this.

Anyway, today I received a letter responding to my email queries....

It states how a benefit in kind can be incurred... so for example I received 12 months at £48pm free... however they make no reference to the second year which is at half the rate (although I thought it was less than £24 to be honest - need to check my payslip).

They then go on to state -

I can confirm that a third party benefit in kind does not exist if you remain a member for the duration of the two years as this premium is not supplemented after the two year offer period and standard age-banded rates would apply thereafter

Perhaps I am being dim here but what I don't understand is that within the two year period or not the fact remains that I have received something for nothing (or for less than normal). Whether I pull out now or later the benefit in kind still exists. However that tax liability surely increases the longer I remain in the scheme (during that two year supplemented period).

Their letter goes on -

I hope this clarifies the situation for you. I would remind you that I cannot cancel your cover until I receive the signed tax slip at the foot of the tax implication letter.

I'm happy to sign this because I still think the benefit in kind exists whether or not I stay in the scheme. It just seems a bit questionable that they are trying to encourage me to remain in the scheme and thereby increase the tax liability...... unless of course I am misunderstanding how the system works.

amf

jimmo wrote: »

Obviously we don’t know all the details but I rather think that the rather veiled threats of potential tax liability are, at best, on a par with the sort of letters that dubious debt collectors send out threatening to send in the bailiffs etc when they know that they haven’t got a snowball’s chance of doing so but maybe a few mugs will pay up.
If you have received a year’s free medical insurance and that provision is connected with your employment you have received a taxable benefit. End of story.
If you are currently being provided with medical insurance at half price and the provision is connected to your employment you are receiving a taxable benefit. End of story.
There is absolutely no way that if you continue to pay the “discounted” premiums for the rest of the current year that the discount will suddenly cease to be a taxable benefit.
If you are a regular reader of this forum you may recall threads where employers and even trade unions advertise and recommend companies that will get you a tax rebate for a 40% share of the rebate.
Stuff and nonsense. Get out now. With their dubious sales techniques you should probably thank God that you haven’t needed to make a claim.
Coming back to the tax issues if the insurance company reports you to HMRC now for a 2008/09 benefit they will also have to explain to HMRC why they failed to report at the appropriate time. In my days at HMRC that was 15 May and the maximum penalty, levelled on the provider of the benefit, was £3,000 per person.

I couldn't agree more that the explanation given by the insrance company stinks :beer: Just to clarify a couple of points;-

1. The quantum of the B-I-K is the cost borne by the employer. If the employer has paid nothing, it follows that the B-I-K is nil.

2. The employer (not the insurance company) requires to submit any P11D which is required and, as jimmo says, there are penalties for failing to do so, without reasonable excuse. Nowadays the penalties are based initially on the number of late P11Ds and the number of months they are late.

dharm999

dfarry

The whole us baffling! Your employer is providing a benefit in kind as others have said, and therefore there is an amount of tax for you to pay, as well as employers NI for yuor company to pay. What woud worry me is:

a. I would have unpaid tax on the bik
b. Your employer is liable for fines for not submitting P11Ds on time, as well as the Ers NI
c If lots of people get (and have had in the past) this benefit, then your employer has a huge potential tax liability, and if they have been doing this a long time, then the amounts will soon mount up

You are in a potentially difficult situation as if you get in touch with HMRC to tell them you've had the bik, then there is the potential for the whole thing to get investigated - unlikely I would have thought, but who knows? And if there is an investigation, the amounts owed by your employer could be thousands. That would no doubt make you extremely unpopular at work if that happened.

As an aside why do you want to opt out of the scheme? If its a half decent health scheme then £24/month seems remarkably cheap and well worth having.

In your situation I'm not sure what I would do. I think I would stay in the scheme for the second year, and let HMRC know about the bik myself. If they decide to investigate your employer its up to them, and if they find anything, then its your employers fault not yours for not following the rules.

dfarry

Thanks all...

Erm... this is a difficult call... I can't really say who this scheme is intended for but you'd be very surprised if you knew considering what they are now telling me.

I think I will give them a call... I can't believe they would be deliberately trying to make people stay in the scheme, denying any BIK will exist if staying in the scheme past the introductory period. Perhaps there is some exemption or strange tax quirk that means they are able to work around it.

If this is the case then I'd probably stay in, but if I am paying anyway and yet also incurring a BIK tax (albeit small) then I'd rather come out. I've never been a big fan of private schemes, my background is NHS, funny how consultants can be suddenly available to private patients yet NHS waiting lists would increase (anyway that's another issue)

dfarry

amf wrote: »

1. The quantum of the B-I-K is the cost borne by the employer. If the employer has paid nothing, it follows that the B-I-K is nil.

Hi again, just to pick up on this point here... I think that my employer has paid nothing but the insurance company, in a bid to tempt me to pay into their scheme has effectively given me a year free and then a year at half price as a result of my employment.

On that basis I can perhaps understand how BIK would be nil, if this is the case then exiting the scheme now shouldn't make any difference and signing a disclaimer etc.. should not be necessary. I want to ensure that if I did continue paying into the scheme (even half the price) that later on I am not taxed for the two years as a BIK as well.

I don't seem to be getting this explained by the company very well... I have just called to speak to their Finance Manager and he has promised to call me back. In the meantime I have just received a further email.

As explained in the letter if you remain in the scheme past the 2 year period subs are no longer supplemented, going onto full rate from the third year onwards. Therefore no 3rd party benefit in kind exists. I hope this clarifies the situation.

magpiecottage

I would be tempted to complain to the insurer that your were offered the cover as "free" but it was not made clear to you that unless you then paid to renew it, this would be treated as a benefit in kind and taxable.

They may then tell you your employer should have explained but, unless your employer is itself authorised by the FSA, the insurer, or any broker that arranged it with your employer, will be responsible. If it was a broker then the insurer would either tell you who it was or pass the complaint on to them.

silvercar

Is it possible that there is some sort of deal between the insurer and the company, whereby the insurer pays the cost of insuring you (and the company nothing and therefore no BIK) in the first two years if and only if you continue with cover after the 2 years. If you withdraw from the scheme less than two years after joining the company pays what would have been your premiums to the insurer (therefore incurring you a BIK).

That would make sense of their statements to you on BIK.

From the companies point of view they have offered you a private health insurance at attractive rates with the only risk to them being having to pay for those that pull out. This could be considered attractive to the company as (a) a company offering a health scheme would be seen as caring and attractive and (b) staff time of sick is reduced if employees can go private rather than wait for NHS.

dfarry

Thanks for your comments, hopefully I will speak to the Finance Manager tomorrow and get a full explanation of how this scheme works.

dfarry

OK it's all a bit confusing...

I have spoken to the Finance Manager and he apologised becasue the application I filled out did not state that the free and reduced payments were subject to a minimum two year term.

The scheme was not specifically linked to my employer, merely just the type of employer it is and this scheme is solely offered to members of the employer. Therefore the two year period is more like a freebie that they hand out.

Asked about benefits in kind he wasn't really sure but said that they had been advised by their auditors that a benefit in kind may be considered by the IR. if leaving within the two years. Personally I can't see how this would be the case now. The company gave me something for free that was not directly linked to my employer.

I just need to decide whether to keep paying £10.50 until the end of the two years or leave the scheme now. After two years the premiums increase to just under £50 per month!.