Explaining Benefit in Kind to Korean HR Director
In the UK, the healthcare landscape differs significantly from the universal national insurance model in Korea. The British system operates on two parallel tracks:
- The National Health Service (NHS): A publicly funded system that provides healthcare free at the point of use for all residents.
- Private Healthcare: A secondary system where patients pay fees (often through private insurance) for faster access or specialized services.
Unlike Korea’s unified national health insurance, where everyone contributes to and accesses the same equal system, the UK offers a choice between the comprehensive, free public sector and the independent private sector.
1. The HMRC Perspective: Private Healthcare as “Deemed Income”
In the UK, HMRC (His Majesty’s Revenue and Customs) distinguishes between essential care and corporate benefits. While the NHS provides universal free care similar to the Korean health system, Private Medical Insurance (PMI) is classified as a discretionary “gift” from the employer. Because this insurance grants employees exclusive access to faster, premium treatment, the UK government treats the premium paid by the company as a taxable cash benefit. Consequently, it is added to the employee’s gross income for tax purposes.
2. The idea of BIK (Benefit in Kind)
Benefit in Kind (BIK) refers to any non-cash advantage—such as a company car or private medical insurance—provided to an employee in addition to their base salary. Under UK tax law, these perks are classified as ‘notional income.’ This means that even though the employee doesn’t receive cash in hand, the monetary value of the benefit is added to their taxable earnings and taxed accordingly.
3. Example of the calculation (Table)
A Simple Example for the Director
| Item | Amount |
| Annual Cost of Insurance (Premium) | £1,000 |
| Employee Tax (at 20% rate) | £200 |
| Employee Tax (at 40% rate) | £400 |
- While the employee receives the full coverage of the medical plan, their net take-home pay is reduced. This is because the income tax due on the benefit’s value is deducted directly from their monthly base salary through the payroll system.
4. How to persuade Korean HR director
If Korean HR asks why the UK government tax for medical treatment, this will be the start to explain
- Emphasis on the fairness: The UK government’s tax policy is built on the principle of fiscal equity. It is considered unfair for employees at specific firms to receive high-value perks tax-free while others do not have access to such benefits. To ensure a level playing field across the entire workforce, the government treats private insurance as notional income, subjecting it to income tax to maintain fairness between the public and private sectors.
- Operation(P11D): To remain compliant with UK regulations, the company must report these benefits to HMRC. This is typically managed either through an annual P11D filing or by ‘payrolling’ the benefits on a monthly basis. Adherence to these reporting procedures is a statutory obligation for all business entities operating in the United Kingdom in the UK.
5. Summary
While the UK’s NHS provides universal healthcare free at the point of use, any private medical insurance provided by an employer is classified as a taxable benefit. Under this structure, the company is responsible for paying the insurance premiums, while the employee is legally obligated to pay the resulting income tax, as required by UK tax law.
