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Tax-efficient insurance choices for business owners

Business owner looking for tax-efficient insurances
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    Successful businesses look for ways to cut costs and make operations as efficient as possible to keep profit margins healthy. There are lots of ways this can be achieved, but having the right insurance is often overlooked. Proper insurance coverage helps with things like risk management, but it can also be optimised to help with tax efficiency.

    By understanding your insurance options and how they can be tax-deductible, your business can enjoy a significantly reduced tax liability. So, in this article, our business protection and tax experts will discuss different tax-efficient insurance choices for business owners to help improve your company’s overall financial health. For more information, get in touch with us today.

    Which business insurances are tax-efficient?

    When selecting insurance policies, business owners should consider those that are recognised by HMRC as allowable business expenses.

    The right insurance policy can provide necessary coverage while also offering significant tax relief, reducing the net cost of the premiums.

    Relevant life insurance

    Relevant life insurance is a standout choice for business owners looking to provide death-in-service benefits to employees in a tax-efficient manner. This type of policy is paid for by the business, and the benefits are usually tax-free for the employee’s family. Importantly, the premiums are generally deductible as a business expense, not treated as a benefit in kind, thus not attracting.

    National Insurance contributions and offering corporation tax relief. Some of the main advantages of this form of coverage include:

    • Tax Allowance Expense: As the business owns the policy, premiums are paid by the company and can be classified as a tax allowance expense. This lets the company save between 19% – 25% corporation tax, depending on the profit level.
    • No Income Tax: The policyholder doesn’t have to pay income tax on the policy as there is no benefit-in-kind value associated with the premiums.
    • Lump Sum Payment: These policies are written to trust, which means that a lump sum is paid to the employee’s beneficiaries if they die or receive a terminal illness diagnosis during their employment.
    • Pension Efficiency: These policies are quite different from registered group schemes and aren’t incorporated into a lifetime pension allowance.

    Business critical illness

    Business critical illness cover, which provides a lump sum payment if the insured individual is diagnosed with a specified critical illness, can also be structured to be tax-efficient.

    Premiums may be considered a business expense depending on the beneficiary of the policy (whether it’s director or employee-specific), potentially allowing the business to claim tax relief on the cost.

    Executive income protection

    Executive income protection policies are designed to cover up to 80% of an employee’s income if they are unable to work due to illness or injury. These premiums are typically considered a business expense, providing the policy is set up correctly.

    The payments received under such a policy are treated as income and are subject to income tax, but the initial premiums can provide tax relief for the business.

    Business loan protection

    Business loan protection is essential for ensuring that outstanding debts are covered in the event of the death of a key person who guaranteed the debts.

    This is a tax-neutral expense where the business is able to use the company funds to pay for the expense, but there are no tax savings..

    How do you know which insurance to take out?

    Deciding on the right type of insurance involves assessing the specific needs of your business and your employees. Consider factors such as the roles of key individuals, the impact of their potential absence, and the legal requirements of your business sector.

    Consulting with a financial advisor who understands both insurance and tax implications can provide valuable guidance.

    At WIS Accountancy, we’ve helped countless clients find the right insurance policies for their needs. What’s more, our guidance will ensure that your policies are working as tax-efficiently as possible for you.

    What insurances do not qualify as a business expense?

    It’s important to note that not all insurance policies qualify as a business expense. Personal insurance or policies that cover only the personal interests of a business owner without any clear business benefit typically do not qualify for tax deductions. The distinction between personal and business-oriented benefits is important to get right when determining tax efficiency.

    Some examples of insurance policies that would not fall under the category of a business expense include:

    • Personal Life Insurance: Personal life insurance policies that benefit the individual or their family, without a direct business purpose, are generally not tax-deductible. Business policies with tax advantages are specifically designed for this purpose.
    • Personal Health Insurance: Personal health insurance that covers private medical treatment for the business owner or employees as a personal benefit does not qualify as a business expense. This type of coverage is considered a personal benefit and, if paid by the business, may be treated as a taxable benefit in kind.
    • Personal Accident Insurance: This type of insurance, which covers individuals in the event of personal accidents leading to injury or death, is generally not deductible if it is not directly linked to the business operations or the roles the insured individuals play in the company.

    How do you claim insurance as an expense?

    To claim insurance as a business expense, ensure that the policy is necessary for business operations and directly related to business activities.

    The premiums should be paid directly from the business accounts. When preparing your business’s tax return, include the cost of the premiums in the relevant section for allowable expenses.

    Proper documentation and adherence to HMRC guidelines are essential for compliance and to support your claims during audits.


    Selecting the right insurance policies and understanding their tax implications is a useful way to maximise tax efficiency in your business.

    By opting for insurance policies that qualify as business expenses and consulting with financial experts like WIS Accountancy, business owners can significantly enhance their financial strategies.

    The integration of tax-efficient insurance can help with managing risks while also contributing to the financial well-being of both the business and its employees, making it a worthwhile aspect of strategic business planning.

    If you would like to learn more about tax-efficient insurance policies for your business or would like guidance on other tax-related matters, please contact our team at WIS Accountancy today.

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