Yes — most schemes let employees decline cover or leave at renewal, and the benefit-in-kind tax generally stops once they're genuinely removed from the policy, with the taxable value pro-rated for the part-year. The catches: mid-year exits depend on the insurer, offering cash instead triggers OpRA rules, and rejoining later may mean fresh underwriting.
- ✓Employees can normally decline or leave a scheme; membership is rarely contractual.
- ✓BIK is pro-rated: covered for 4 months of the year means roughly 4/12 of the premium is taxable.
- ✓Rejoining isn't automatic — insurers may re-underwrite, losing cover for conditions that arose meanwhile.
Yes — but check the scheme rules first
Company health insurance is a benefit, not an obligation: an employee can normally decline to join when first eligible, and ask to leave an existing scheme. Whether they can exit mid-year depends on the policy — some insurers remove members at any time with a pro-rata premium refund to the employer, others only at the annual renewal date. HR simply notifies the insurer and the member comes off the schedule.
Two employer-side wrinkles. First, some group schemes are priced on covering all eligible employees (or a minimum headcount — schemes start from 2 employees), so a wave of opt-outs can affect the rate or, in tiny schemes, the scheme's viability. Second, if the employment contract lists private medical cover as a contractual benefit, removing it needs the employee's agreement in writing — which an opt-out request effectively is, but paper it properly.
What happens to the BIK tax
The benefit-in-kind charge follows the cover, not the calendar year: once the employee is genuinely removed from the policy, the taxable benefit generally stops accruing from the cover end date. 'Genuinely' is doing work there — declining to use the cover, or asking claims not to be paid, changes nothing. The benefit exists because cover is provided, so tax stops only when the insurer actually takes the member off risk.
Timing matters too: the P11D (or payrolled figure) reports the premium paid for the period the employee was covered, so a mid-year exit produces a part-year benefit rather than zero. And expect the tax code to lag — HMRC often keeps the benefit in the code until the next P11D cycle confirms it ended, so employees should update their personal tax account rather than wait a year for the correction.
The part-year maths
Worked example: an employee on a plan costing the company £1,200 a year opts out with effect from 5 August — four months into the tax year that began 6 April.
| Full year on the scheme | Opts out after 4 months | |
|---|---|---|
| Premium paid for their cover | £1,200 | £400 |
| Taxable benefit reported | £1,200 | £400 |
| Tax at basic rate (20%) | £240 | £80 |
| Tax at higher rate (40%) | £480 | £160 |
| Employer Class 1A NIC (15%) | £180 | £60 |
In practice the reportable figure is the premium the employer actually paid for that member's cover period — insurers' adjustment statements show the pro-rata charge and any refund, and that statement is the source document for the P11D. The employer's Class 1A NIC shrinks proportionately too. The same logic runs in reverse for mid-year joiners: covered from December means roughly a third of a year's benefit.
Build a scheme people opt into
Why employees opt out — and what to offer instead
- The tax versus perceived value. A healthy 28-year-old paying £20 a month in higher-rate tax on cover they've never used sees cost, not benefit — the most common driver by far.
- Family premiums at higher rates. Company-paid family cover at £2,000+ can mean £800+ a year in tax; some employees prefer employee-only cover or none.
- Duplicate cover. Already covered on a partner's scheme — paying tax twice for one household's protection rarely makes sense.
- Tax-threshold management. A benefit that nudges income over £50,270 (child benefit taper, higher rate) or £100,000 (allowance withdrawal) can have an outsized effective tax cost.
Before accepting the opt-out, it's worth showing the actual numbers — our BIK worked examples often reveal the tax is smaller than assumed. Alternatives that keep some protection include stepping down from family to single cover, adding an excess to cut the premium (and therefore the tax), or a lower-tier plan for that employee category. A health cash plan is a lower-BIK fallback some employers offer opt-outs. Timing helps too: collecting opt-out decisions at renewal each year, alongside updated premium and tax figures, keeps choices informed, gives the insurer one clean annual membership change instead of a trickle, and hands finance a predictable Class 1A figure for the year.
The rejoining catch
Opting out is easy; getting back in is where the small print bites. Rejoining rules are set by each insurer, and a returning member is often treated as a new joiner: cover typically restarts on new underwriting terms — a fresh moratorium or new medical exclusions — rather than the terms they originally held. A condition that emerged during their time outside the scheme may well be excluded when they return, which is precisely when they wanted the cover.
Some insurers also restrict re-entry to the next renewal date, require employer sign-off, or (on larger medical-history-disregarded schemes) allow returns onto MHD terms only at defined windows. The rules differ enough between insurers that it's worth checking before anyone opts out, not after. Make the position part of the opt-out conversation: leaving is reversible, but not necessarily on the same terms — and put that warning in writing. Scheme rules and tax treatment vary, so check your policy documents and, for edge cases, your accountant.
Frequently asked questions
Can an employee refuse to join a company health insurance scheme?
Generally yes — joining is optional in most schemes, and an employee can decline when first eligible with a simple written confirmation. Employers should note it on file and tell the insurer. The main caveats: some schemes are priced on full eligible headcount, and rejoining later may mean fresh underwriting.
Does the BIK tax stop if an employee opts out of health insurance?
Yes, once they're genuinely removed from the policy — the taxable benefit stops accruing from the insurer-confirmed cover end date, with the part-year premium still reportable. Merely not using the cover changes nothing; the benefit arises because cover is provided, so the insurer must actually take the member off risk.
Can an employee leave the company health scheme mid-year?
Often, but it depends on the insurer: some remove members any time with a pro-rata refund to the employer, others only at annual renewal. The employee's taxable benefit is pro-rated to the cover end date either way. Check the scheme's mid-term adjustment rules before promising a date.
How is the benefit in kind calculated for a partial year of cover?
On the premium the employer actually paid for the member's cover period. An employee on £1,200-a-year cover who leaves the scheme after four months has a £400 benefit — £80 of tax at basic rate, £160 at higher — and the employer's 15% Class 1A NIC drops to £60. The insurer's adjustment statement is the source figure.
Why would an employee opt out of free company health insurance?
It isn't free to them: the premium is taxed at their marginal rate, so family cover at £2,000 costs a higher-rate taxpayer £800 a year. Common reasons include never claiming, duplicate cover on a partner's scheme, and benefits nudging income over the £50,270 or £100,000 tax thresholds. Showing the real monthly tax figure often changes minds.
Can an employee rejoin company health insurance after opting out?
Usually, but rarely on the old terms. Insurers typically treat returners as new joiners — a fresh moratorium or new exclusions — so conditions that developed while they were out may not be covered. Some insurers also limit rejoining to renewal dates or set windows. Check the specific insurer's rules before the employee leaves.
Does an employee's tax code update automatically when they opt out?
Not immediately. HMRC often leaves the benefit in the tax code until the next reporting cycle confirms cover ended, so the employee can overpay for months. The fix is updating the benefit figure in their HMRC personal tax account, or waiting for the P11D showing the part-year value to trigger a correction and any refund.
Can we pay employees cash for opting out of health insurance?
You can, but it changes everyone's tax: a cash alternative makes the scheme an optional remuneration arrangement, so members who keep cover are taxed on the higher of the cash offered or their premium. The cash itself is normal taxable pay for the opt-out. Most employers avoid formal cash alternatives for exactly this reason.
Do opt-outs reduce what the employer pays for the scheme?
Yes — the insurer refunds or stops charging the departed member's premium pro-rata, and the employer's Class 1A NIC falls with the total benefit. But on small schemes, dropping below minimum membership (schemes generally need at least 2 employees) or shrinking the risk pool can affect the per-head rate at renewal.