Tony Granger examines the options available for a business to pay for the long-term care of a parent, child, or relative.
Care costs depend on the type of care required, and whether medical or frail care is also needed, which makes it more expensive.
Whilst the government (NHS) is required to provide for primary health care needs, care for a disabled or chronically ill person is usually carried out at home or in a private nursing home and may not fall under this category. Costs vary according to region, and the Laing and Buisson Care of Older People, UK Market report 2016/17 states that on average residential care costs are £31,200 a year, rising to £43,700 where nursing care is needed. Granted, some of these costs are met by local authorities and benefits, but often individuals and their families pay for care fees.
If your savings are greater than £23,250 in England, you need to use your capital to pay for the full costs of care. Below £14,250, the local council pays fully for basic fees – any additional costs are paid for by your family.
Finding cash to top up care fees is going to be difficult for most people. The question is ‘can your business fund care fees for you or a third-party relative, and what are the implications of it doing so?’ Generally, there are no tax advantages to a business funding an employee’s care costs.
For an employee or an employee’s relative
Yes, the business can pay care fees, but such payments will usually be seen as additional salary and be liable to income tax and National Insurance contributions (NICs) accordingly. If the business pays the care home directly, this is a benefit-in-kind and Class 1A NICs are also payable by the employer.
Company healthcare trusts
Some employers set up a trust to meet employees’ medical expenses (and care costs). The employer contributes to the trust (see HMRC’s Employment Income manual at EM21761). The chargeable benefit is the cost of medical treatment paid less any employee contribution. Under certain circumstances, there is no payment of earnings (chargeable under ITEPA 2003, s 62) as the payments do not derive from employment but rights under a medical scheme.
Company loans
Loans can be made to employees (including directors) to pay for care costs. Beneficial loans up to £10,000 in total are not chargeable to tax. Otherwise, the difference between the HMRC official rate of 2.5% and the rate (if any) paid by the employee is treated as a taxable benefit-in-kind.
Example - £100,000 loan at nil interest
The benefit-in-kind of 2.5% x £100,000 = £2,500 is taxable at the employee’s tax rate. At (say) 20%, this is £500 tax (payable each year until loan is repaid).
Insurance policies
There are currently no insurance policies that will pay for long-term care costs that can be funded by an employer (other than an immediate annuity). Policies that provide medical benefits for the employee and family members can include medical costs associated with care.
The employee is chargeable on the benefit received and the premium paid by the employer is a benefit-in-kind. Group permanent health insurance policies can provide an income to an employee who is sick, ill, or disabled and cannot work – up to retirement age.
The future
Ideally, employers could be encouraged to assist with long-term care costs (in the USA, small businesses get tax credits for doing so), but in the UK the reverse is true. Medical and care costs are subject to taxation both in the funding phase and the benefit receipt stage.
Practical Tip:
Consider if long-term care costs funding could be a benefit for employees. Company loans provide the highest benefit at the lowest tax cost. Examine all the options.
