With the range of insurance options available, whether a particular policy is tax-deductible depends on a range of criteria.

Insurance costs that are commonly perceived as a tax-deductible expense

Insurance policies taken out primarily to benefit the business are typically tax-deductible. These include:

• Policies taken out to cover the loss or damage to fixed assets – this is under the assumption that the assets in question are owned by the business
• Policies taken out to cover the loss of business profits – situations that may arise from premises fires, interruption or loss of use of assets, raw materials, supply interruptions
• Policies taken out to cover for professional negligence – however, any damages, etc. paid because of professional negligence are not an allowable deduction to the extent that they are recoverable under an indemnity policy
• Policies taken out to indemnify employees against legal action taken against them personally for actions in the course of employment
• Policies taken out that are used as fee protection (particularly tax investigation cover) – the costs of the fee protection themselves are allowable, but if the tax enquiry itself reveals inaccuracies and additional liabilities or those inaccuracies are careless or deliberate, the cost of the protection is not allowable for that year.

Insurances that might NOT be claimable for tax purposes

An employer may take out in their own favour, a policy insuring against loss of profits resulting from the death, critical illness, sickness, accident or injury of an employee, director or other ‘key person.’ Policies are only tax-deductible if their sole purpose is to cover the loss of trading income resulting from the loss of a key person’s services. .

It is common for employers to pay for employees’ private healthcare or private dental care etc. So long as the employees themselves are being evaluated and reported for the value of the benefit (Benefit in Kind or BIK), the expense itself would be an allowable deduction to the employer. If no BIK is declared, the policy would not be considered an allowable expense for tax purposes and could not be deducted from company profits.
In conclusion, though HMRC’s guidance may indicate that specific insurances are tax deductible, it is vital that insurances are set up correctly and all details used to create an insurance policy are correct and valid. Any errors may invalidate the insurance cover and the ability for the premium to be tax deductible.

We always recommend that if you are unsure when setting up a policy or just want the details of your current policy verified, contact an independent financial advisor. Get in touch, and we’ll introduce you to an IFA whose services we highly recommend.