Great news for business owners, not so good for the taxman

Are you a company director?

Do you have life insurance in place to protect your family?

If so you could be paying an unnecessary tax penalty. If you pay for this cover from your own bank account you will be paying from after tax income, and if you are paying from the business account you will probably be taxed on the payment as if it were income.

Recent changes in legislation now allow small companies to benefit from an arrangement that only used to be available to large companies.  They can do this by taking out ‘relevant life policies’.  These policies are particularly suitable for small businesses that do not have enough eligible employees to warrant a group life scheme. They can be written on an individual basis so are available to all companies no matter how small.

The tax benefits are:

• Payments are made by the company with no benefit-in-kind charge back
• No National Insurance implications
• Possible tax relief as a business expense
• Tax-free benefits to dependants in the event of a claim

Additionally, these policies can be particularly appealing to high-earning employees who have substantial pension funds and do not want their death in service benefits to form part of their lifetime allowance.

A “relevant life policy” is defined in subsection 393B(4) of the Income Tax (Earnings and Pensions) Act 2003.

So for anyone who can get the premium paid for by the Company (i.e. owner/directors) there is a possible and significant saving.

The only small problem is that only a couple of life companies offer policies through this legislation. However, these are companies with generally competitive premiums so the cost saving can still be there and significant.