Medical insurance deduced from personal allowance

g000444555

Hi all,

The tax code in my last payslip has changed and my personal allowance has been reduced by the full amount of the medical insurance provided by my employer in the P11D document. I have the P11D document and I can see the amount for the medical insurance.

Looking at https://www.tax.service.gov.uk/check-income-tax/tax-free-allowance

I can see the following:

1. Personal Allowance £12,500

2. Under the "Deductions" section, there is an entry "Medical insurance from XYZ LTD    £xxx", listing the full amount of the medical insurance provided by my employer in the P11D document.

3. At the bottom, in the section "Your total tax-free amount" the full amount of medical insurance is being deduced from my personal allowance.

My question is, should the full amount of my medical insurance be deducted from my personal allowance? I do not even understand the correlation. According to online resources, the basic Personal Allowance for 2020-21, applicable to earners with an annual income of less than £100,000, is £12,500. My annual income is less than £100,000 even when adding medical insurance. It seems like a pointless benefit to having medical insurance if I am ending up losing most of the amount for taxes. Would you agree?

Also, my actual net pay seems to be considerably lower than the following online resources calculate:

* https://www.thesalarycalculator.co.uk/salary.php

* https://www.moneysavingexpert.com/tax-calculator/

* https://www.tax.service.gov.uk/estimate-paye-take-home-pay

Would it make sense to take any steps to verify my payslips are correct, and how do I do that?

Many thanks

unholyangel

Yes, it is supposed to be the cash equivalent that you pay tax on. Why wouldn't it be the full amount? 

I wouldn't agree it's a pointless benefit. If the BiK Value is say £2000, you're basically getting a product worth £2000 for £400-£800 depending on whether you're basic rate or higher rate. 

Jeremy535897

I agree, and I would add that the reason you received lower net pay than you expected may be that you are paying tax on 6 months of benefit (April to September) out of one month's pay.

oldbikebloke

g000444555 said:

It seems like a pointless benefit to having medical insurance if I am ending up losing most of the amount for taxes. Would you agree?

seems you don't understand how to evaluate a taxable benefit
always ask yourself:
- Would I have paid for this "item" from my salary, ie my post tax cash income?
- if yes, am I happy that I will still have to pay some money towards it in the form of a tax payment, so do I really "need" it when I am getting it for a big discount (80%, 60% or 55%) compared to buying it myself, but it is not "free" 

the taxable benefit is simply the same amount of tax you would have paid on the cash you would have needed to earn in order to buy that benefit. Therefore, where the company pays for it, you are getting the full item for the equivalent cost of paying only your relevant tax rate, 20%, 40% or 45%.
You may decide that as you are never going to actually need it then paying "extra" tax is indeed "pointless". Medical insurance being a prime example if you are a 20 year old and somewhat unlikely to need say heart surgery, you are just losing money off your net pay for something you would not have personally bought anyway. 

chrisbur

g000444555 

Would it make sense to take any steps to verify my payslips are correct, and how do I do that?

If you want to check your payslip use this....
http://payecalculator.hmrc.gov.uk/PAYE0.aspx
It is a bit more complicated than the ones you tried but this one give the exact correct answer all the time; the other give close answers most of the time, and not so close some of the time.

badmemory

You may find that the medical insurance is a requirement of your employment.  The last thing an employer needs (especially if you have reasonable sick pay) is you sitting at home being paid , waiting for an operation on the NHS that could take many many months.  They will want you to be able to go private via your insurance & get back to work as soon as is practical.  Check your contract of employment.  When my (many years ago) employer stopped the medical insurance they also seriously reduced the amount of sick pay.  So don't get flu then break a bone in the same year!

g000444555

Thanks, everyone for the enlightening answers. I had a look at my employment contract and it appears the medical insurance is a mandatory benefit. I guess it's not a terrible benefit after all. Only thing I am unsure of is how reliable the particular medical insurance is, considering the fact that it comes as a mandatory benefit through the employer as opposed to private insurance you would buy yourself. I was actually thinking to buy a good private medical insurance and then in a few months do some "maintenance repairs" which are optional while I am young, however, better done before I get older.
Originally, I did not understand why my tax code (tax-free allowance) should change as a result of the benefit. What I just realised is that the reason might be because it does not appear as regular income, therefore, they tax it indirectly by reducing the tax-free amount from the regular income.

Jeremy535897

Most employer policies are better than taking out your own.
You can't deduct tax from something that isn't cash, so they take the tax off your cash wage by reducing your code.
I have not heard of anyone taking out personal medical insurance and then having "maintenance repairs". If you are talking about pre-existing conditions, they will be excluded from a personal policy, and quite possibly from an employer policy.