Maximise Tax Savings on Medical Treatments for UK Freelancers, Contractors and Company Directors

A Guide To Expensing Medical Treatment Through Your Limited Company

Written by 
James Morgenstern
Updated on
February 19, 2024

Navigating the labyrinth of tax laws can be daunting, especially when you're a freelancer, contractor, or company director managing your own limited company in the UK.

One area that often causes confusion is the tax exemption on medical treatment paid for by the company.

Let's break it down, jargon-free, so you can understand exactly what this tax break is, how to claim it, and most importantly, how much it can save you each year.

What Is the Medical Treatment Tax Exemption?

The Medical Treatment Tax Exemption is an HMRC-approved tax benefit designed for business owners who incur medical expenses to help them, or their employees, return to work after an illness or injury.

It's particularly beneficial for small business owners, as it can significantly reduce your tax bill, keeping more money in the company to invest in its growth whilst helping you get back to work sooner!

Key Rules of the Medical Treatment Tax Exemption

The medical treatment cost is tax-free up to £500 per tax year for each employee — which could be yourself as a company director.

To qualify for the exemption:

  • The medical treatment has to aid an employee's return to work after at least 28 days of absence due to ill health or injury.
  • Alternatively, a healthcare professional must deem you or an employee unfit for work for at least the same duration. For example; you're a videographer that's broken their hand with no chance of being able to work for 28 days.
  • The treatment must be recommended by a healthcare professional.
  • The company can either pay directly for the treatment or reimburse their employees for the treatment.

Medical Treatment Abroad

If work takes you across borders and you face the unfortunate event of falling ill or getting injured, the full cost of necessary medical treatment abroad paid for by your company is also not taxable.

This can be a significant relief when dealing with the compounded stress of being unwell in a foreign country. Note, though, that this exemption doesn't extend to other family members, and only covers the individual employee.

Moreover, if your company provides insurance for overseas medical treatment, this expense falls within the same tax exemption, cushioning you against unforeseen medical costs while abroad.

How Much Are the Tax Savings?

Let's explore a realistic example to see the potential savings.

Real-World Example of Tax Savings:

Imagine you're a freelance videographer that's broken their hand and has been off work 28 days:

  • You have a VAT-registered limited company
  • You're a higher rate tax payer
  • Your company pays corporation tax at 19%.
  • You're buying physio to treat your hand for £500.

Company Tax Savings:

  • VAT Saved: You're able to claim back £83 of VAT on the £500 health screening. Thus, the medical treatment costs £417 excluding VAT.
  • Corporation Tax Saved: By expensing the treatment through your company, you save a further £79 in corporation tax (19% of £417).
  • Total Company Tax Saved: You've saved £162 (£83 + £79) in total tax by purchasing this through the company.

Personal Tax Savings:

  • On the personal side, if you paid for the screening yourself, you'd need to take £755 in dividends after tax.
  • These dividends would incur a tax at 33.75%, leaving you with £500 after paying £255 in tax.

Total Tax Savings:

You therefore save £417 (£162 company + £255 personal) in total by purchasing the £500 treatment through your business. That's nearly an 84% saving vs the initial cost of the treatment in the first place

How Do You Claim the Tax Saving on Mighty?

Claiming this tax saving is straightforward with Mighty. Just follow these simple steps:

  1. Buy the health screening through your company and locate the transaction in your bank feed.
  2. Select the transaction and categorise it as 'Healthcare' under the 'Overheads' category.
  3. Hit 'Approve,' and Mighty applies the tax savings for you in real time.

And that's it—enjoy over £417 in tax savings, completely within the rules!

If You're Not Using Mighty

Keep track of the transaction and inform your accountant about the specific transaction and the tax exemption being claimed. They should handle the exemption claim and apply the tax deduction manually for you.

Try Mighty For Yourself

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Try Mighty free for 30-day and experience first-hand how Mighty can save you money, time, and stress. Discover Mighty today.

Through effective record-keeping, understanding your taxes, and with a trusted platform like Mighty, you can simplify your accounting journey, freeing you to do what you do best—innovate, create, and expand your business. Get started now and make your accounting mighty powerful.

- Maximising Tax Savings - What Is the Medical Treatment Tax Exemption? - Key Rules of the Medical Treatment Tax Exemption - How Much Are the Tax Savings? - Real-World Example of Tax Savings - How Do You Claim the Tax Saving on Mighty? - If You're Not Using Mighty - Ready to Try Mighty?
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