Insurers are calling for the Chancellor to review taxation arrangements for group risk and healthcare policies in next week’s Budget to reduce “double taxation” on premiums.
Many are concerned that tax rules introduced by HMRC in 2017 act as a disincentive for employers to offer a range of insurance products that offer preventative and rehab services, which can help reduce pressure on the NHS and support people to stay in or get back to work.
It has been argued this could be a valuable plank of the government’s stated policy to reduce economic inactivity and boost growth in the UK.
Unum has said it wants a “reinterpretation of the Optional Remuneration Arrangements (OPRA) rules”, for group income protection in particular, which would remove the double taxation on premiums and benefits.
Under OPRA rules if an employee sacrifices part of their salary in exchange for GIP, the benefit is treated as a benefit in kind, which means workers need to complete a P11D form and may pay tax on the value of this benefit. The employer is still responsible for paying NICs on the value of these group income protection premiums.
At the same time the employer also pays insurance premium tax, which Unum points out has doubled since 2011. If the employee then claims on the policy, which can provide an income if they are too ill to work, this is also taxed.
However if a GIP policy is fully funded by the employer, not offered via a salary sacrifice arrangement, the employee does not have to complete a benefit in kind form. Many would like to see more flexibility in these rules so these benefits can be offered on a part-pay basis which could increase take up if it was done in a tax-efficient way.
Unum UK head of product proposition Clare Lusted says: “Unum’s wish list for the Budget includes changes to taxation on health and protection insurance. We understand fiscal headroom is limited; however, we believe these measures could provide the economic boost the Government seeks.
“We’d like a reinterpretation of Optional Remuneration Arrangements for Group Income Protection (GIP), removing double taxation on premiums and benefits. This could help widen GIP adoption and its associated wellbeing and rehabilitation support.”
Recent figures show the number of people out of work due to long-term sickness is up 36 per cent in the 3 months to July 2024 versus the same period pre-pandemic in 2019.
Unum says easier and earlier access to vocational rehabilitation and wellbeing support before an employee leave the workforce due to long-term sickness, could help halt this trend.
Lusted adds: “The standard rate of IPT has doubled since 2011, capturing a larger proportion of spending on health Insurance, including cash and dental plans. Yet NHS waiting lists have an impact on long-term sickness absence. With a pressing need for healthcare, this Budget is the time to dismantle barriers that deter adoption of health insurance.”