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Are Income Protection Premiums Tax Deductible and Can I Offset Them as a Business Expense?

I want to take out income protection but, as a company director, I want the business to pay and expense the premiums, is this possible?

Question asked by Amal Rachid

Firstly, it is always wise to consult your accountant on matters of taxation and any final decision will always rest with the local tax inspector.

Income Protection taken out personally tends to be paid from your net income and as a result, any benefit payable should a claim arise is paid tax-free.

Business Income Protection

If you wish to put your Income Protection premiums through your limited company as a trading expense it is usually wise to take out Executive Income Protection rather than a personal plan.

With a personal plan tax is paid on the premiums (which are paid from post-tax earnings) and as a result, a claim will be paid tax-free. With an executive/directors’ plan the premiums can usually be expensed and the claim would be paid to the business which would need to be distributed as income that would be subject to tax.

As such, with an executive plan the insurers will usually allow you to cover up to 80% of gross earnings rather than up to 60% with a personal plan. This is because you would need to insure a higher amount to cover the tax.

Essentially, with an executive plan the business takes out the plan and pays the premiums on your behalf but any benefit paid out would be paid to the business, which would then pay you via the Pay As You Earn (PAYE) system.

When taking out cover through your limited company most providers require the policy to be set-up by an expert adviser. If you need any help please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

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Drew was incredibly helpful all the way along and very responsive and patient with any questions I had (which were many). He was able to get me a much better deal on my new health insurance than I had been able to get online. A success all round!

Francesc Sale
07/06/2019
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