Payment of medical benefits to former directors & shareholders

Payment of medical benefits to former directors...

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Dear All - I have just taken on a fairly large family company from another firm. The company has been running since the 1920s and three years ago the then management team (who are now quite elderly) stepped aside to let the next generation take over. Some held onto their shareholdings and others sold them on to family members.

In view of the age of the former management team and as part of the handover deal, the company agreed and has paid private medical benefits up to £8,500 benefit in kind exemption for the former directors. The former generation are all family members i.e. fathers, mothers, uncles, aunts - there are no outside parties. As far as I can determine the former management team do not receive any salary nor was there any sort of written up terms between the parties - it was all a verbal arrangement.

My questions are:

1) Does the £8,500 exemption work in this situation - I thought that only arose if the benefits were paid as a result of a current employment arrangement not a former employment or no employment at all?

2) Does the company need to fill in a P11d or P9 - I don't think the P11d is relevant because of the £8,500 limit and I am sure I read somewhere that a P9 is not required for private medical insurance? 

3) If the £8,500 limit works then the premiums paid would be allowable for CT purposes in the company and tax free on the individuals concerned. However if the £8,500 limit thing does not work then what happens the premiums in the company i.e. are they simply disallowable or are they a directors loan item and what is the tax treatment of the premiums on the individuals concerned.

Thanks for all your help.

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By Richard Willis
05th Jun 2010 11:54

Not deductable for CT surely

As these payments attract no benefit whatsoever to the current business I guess they will be disallowable for CT.

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By User deleted
08th Jun 2010 20:39

What about the rules on retirement benefit schemes?

Have a look at s393B ITEPA, para 27.1 of booklet 480 on benefits and EIM 15021

I have not looked at this in a long while but my gut feel is that the payments could be taxable in this way if not as distributions as mentioned above.

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