Many UK directors assume that if a company pays for private medical insurance, it will automatically create a taxable P11D benefit. In many cases this is true – however, there is an important exception that is often overlooked.
If the cost is correctly “made good” by the director, the benefit may be reduced or potentially eliminated altogether.
What is “Making Good”?
HMRC allows employees and directors to reimburse their employer for certain benefits provided to them personally.
Where this reimbursement is made correctly and within the required deadline, the taxable benefit can be reduced accordingly.
Importantly, HMRC guidance confirms that reimbursement does not necessarily need to be made by physical cash transfer.
HMRC’s Employment Income Manual at EIM21120 states that making good can occur:
“by a suitable debit to the employee’s current account in the employer’s books and records.”
This is particularly relevant for owner-managed companies where directors frequently use director’s loan accounts (“DLAs”) or current accounts within the bookkeeping records.
Example – Private Medical Insurance
A company pays an annual private medical insurance premium for a director.
Normally:
- this would be a taxable benefit,
- reportable on form P11D,
- with Class 1A NIC payable by the company.
However, if the company:
- debits the cost to the director’s loan/current account, and
- this is treated as reimbursement by the director,
there may be scope for the benefit to be treated as fully “made good”.
In those circumstances, the P11D benefit may be reduced, potentially to nil.
Timing is Critical
For most benefits, reimbursement generally needs to be made by:
- 6 July following the end of the relevant tax year.
Late adjustments may not remove the taxable benefit position.
Proper bookkeeping records and supporting documentation are also important.
But Directors Need to Be Careful…
Whilst using a DLA/current account debit can help reduce a P11D benefit position, this can sometimes create a separate issue.
If the director’s loan account becomes overdrawn by more than £10,000 at any point during the tax year, another taxable benefit may arise – the beneficial loan benefit.
This means:
- the original benefit may have been reduced,
- but the increased DLA balance itself could trigger a separate P11D charge.
In addition, where a director’s loan remains outstanding after the company year end, the company may also need to consider:
- Section 455 tax,
- beneficial loan calculations,
- and HMRC official rate interest rules.
Practical Takeaway
For many directors, charging personal expenses such as medical insurance to a DLA/current account can be an effective way of “making good” benefits provided by the company.
However:
- the accounting treatment must be properly documented,
- the timing must be correct,
- and the wider tax position of the DLA should always be reviewed.
A bookkeeping entry that solves one tax issue can sometimes create another.
Important Caveat
Although HMRC guidance at EIM21120 confirms that “making good” can be achieved through a suitable debit to a director’s current account, the wider facts and circumstances will still matter.
Care should be taken where:
- the DLA is substantially overdrawn,
- bookkeeping adjustments are posted after the year end,
- entries are backdated,
- or there is limited evidence that the debit genuinely represented reimbursement by the director.
HMRC may review whether the arrangements were properly implemented and whether the accounting treatment reflects the commercial reality.
Directors should therefore ensure:
- bookkeeping records are contemporaneous,
- loan account balances are regularly reviewed,
- and advice is taken where multiple P11D or DLA issues overlap.
