If you own a small business there's a better way to buy life insurance for yourself and your key employees.
With a relevant life policy the business makes the payments, not the person who's covered. That means you won't pay any national insurance contributions or income tax on the premiums but you still get the benefits of corporation tax relief. And that all adds up to save you money.
What are the advantages?
- Although the company pays the premiums, they are not normally assessable for income tax on the employee as a benefit in kind. This can be a significant saving, particularly if you are a higher or additional rate tax payer.
- The premiums may be treated as an allowable expense for the employer in calculating their tax liability, as long as the local inspector of taxes is satisfied they qualify under the 'wholly and exclusively' rules.
- Unlike a registered group scheme, these policies have no effect on the amount of money you can contribute to, or accumulate in your pension scheme.
- Also, if you leave the company the cover can go with you.
How a relevant life cover can cut company costs
A saving of £770.27, which is a saving of almost 49%.
*Assumes that corporation tax relief is 19% and has been granted under the ‘wholly and exclusively’ rules. In both cases we’ve assumed a payment of £1000 each year for the life cover on an employee who’s paying income tax at 40% and employee’s National Insurance at 2% on the top end income. We’ve also assumed that the employer is paying corporation tax at the small profits rate of 19% and will pay the employer’s National Insurance at the contracted-in rate of 13.8%.
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