Employer funded PMI should get tax relief - Sickness Absence Review

Tax relief should be applied to private medical insurance (PMI) provided by employers for basic tax rate paying staff, the Sickness Absence Review has recommended.

It also called for the creation of a product set focusing primarily on vocational rehabilitation which would reduce premiums significantly and attract tax relief under the new proposals.

However it has said the government should not intervene to increase coverage of income protection (IP) as this can have negative effects on speed of return to work.

The Health at work - an independent review of sickness absence report suggested that tax relief should include medical treatments and vocational rehabilitation including PMI.

It said: ‘Excluded from the list of EAP services that are granted tax relief by HMRC is employer expenditure on medical treatment, whether purchased directly or through private medical insurance.

‘We do not consider it appropriate to seek tax relief for all recipients of private medical treatment or insurance - employers are likely to purchase these employee benefits for higher-earning staff regardless of the tax rules.

‘However, we believe there is a case for offering tax relief for private medical treatment or insurance for lower earners, for whom the decision by the employer to invest in treatment is likely to be more marginal,' it added.

Tax relief qualification would be restricted to those clearly targeted at helping the employee return to work and so would exclude wider health treatments and be limited to the employee only.

The report's co-authors, Dame Carol Black and David Frost, explained that lower earners were at greater risk of long-term absence and flowing onto state benefits.

This meant a strong case existed for offering tax relief for private medical treatment or insurance to all basic rate taxpayers, to help incentivise employers to intervene.

They also acknowledged that ‘overall the insurance industry clearly has an important role in managing sickness absence.

‘However, the market for IP is well established and we do not think there is a strong case for the State to intervene to drive greater coverage.'

Instead, the report suggested a new rehabilitation only product should be created aside from PMI or IP.

‘Private medical insurance is often a bundled product, covering a wide range of possible medical interventions,' it continued.

‘A separate product focusing primarily on vocational rehabilitation, a much-needed and often neglected intervention, could be a more targeted instrument to speed return to work.

‘Insurance premiums in this case would be lower - estimated to be between £70 and £100 per employee per year,' it added.