Benefit in kind or Salary Sacrifice

Jonah01

Hi,

A friend of mine seems to be paying for their medical health care via salary sacrifice rather than their tax code like I am (p11d and all that). His tax code is now 1000l.

If you sacrifice some of your salary this way do you not pay tax on the benefit in kind?

I'm confused as I didn't think it could be done like this - what am I missing?

Thanks

martinsurrey

You are getting free health which you suffer a benifit in kind for (lets assume the cover costs £100).

So the cost to you is (assuming 20% maginal rate tax payer) 20% of the cost of the insurance, so £20.

Your friend is getting healthcare as salary sacrifice, but the will also get a BIC for it. The only saving is from NIC.

They will sacrifice £100 of salary, saving £20 of income tax, and £12 of NIC contributions while getting a BIC charge of £20. A total saving of £12 from buying the healthcare on the open market.

Jonah01

Thanks.

So the £100 they sacrifice would have to be included into the persons salary by the company on top what they usually earn?

Also one other question.

With mine I may a £10 a month salary sacrifice contribution for my Bupa.

Our HR have said £120 would be deducted from the price of the Bupa when working out my BIK figure for the p11d, Is this correct?

jamesd

As martinsurry wrote, your friend will also get a P11D. Private medical insurance like Bupa, dental insurance lie Denplan and also critical illness cover all have a taxable BIC cost even when purchased via salary sacrifice.

Income protection/permanent health insurance, life assurance are some of the things that have no BIC cost.

The amount isn't 100% of the price, it's closer to 87.9% in my sacrifice numbers for medical and dental and exactly 88% for critical illness cover. I assume that's the NI difference mainly, though I don't know why it's different for CI from medical and dental.

These BIC amounts aren't added to salary by the firm. Instead the individual tells HMRC and HMRC adjusts their tax code to collect the income tax on the amount of BIC. Same end result, just achieved differently.

Jonah01

Just had a look at his payslip and it basically has

Basic Salary £1000
Private health care +£105
Pension -£200
Total £905

Then deductions it has
Tax paid £xxx
Private health care £105 (The same as above)

Whats going on here? The company are paying him £105 a month for the health care and then deducting it.

Does mean he is technically paying the tax at source as well?

The tax code is 1000l

jamesd

I think that's how they are handling the income tax and NI. Adding the private medical cover means that income tax and NI will be paid on it. Then they deduct it again from the after tax amount so they don't pay him too much net pay.

Jonah01

Got ya.

So for him the benefit in kind would be cancelled out doing it this way and his tax code can be left alone?

Thanks