Is life insurance tax deductible for Self-Employed?

As a Self-Employed business owner, you are solely responsible for generating the income needed to keep your business running and to pay yourself. However, something we don’t consider as part of our business plan – but should – is what would happen if you died unexpectedly?

Did you know you can take out life cover through your business and write it down as a business expense? Here we explore how life insurance can be tax-deductible for Self-Employed people.

What is Life Insurance?

Life Insurance protects those you care about financially if you die. Life protection insurance does this by paying out a tax-free lump sum, or regular payments to your dependents if you die while the policy is active.

Employed workers sometimes qualify automatically for death in service benefits when they join a company. However, when you work for yourself you need to pay for life insurance yourself.

Self-Employed Life Insurance could be the lifeline that keeps your business afloat and your family protected should the worst happen. Affordable protection and the peace of mind it brings is well worth the monthly life insurance premiums.

Is it tax-deductible if I am Self-Employed?

Yes, if you arrange for your limited company to pay for ‘relevant’ life insurance through your business.You can claim it as an allowable business expense in the same way you would claim for business trips.

How does that work?

You simply include the annual cost of your life insurance premiums as an expense on your annual tax return together with your other business expenses. Provided you can prove the relevant life insurance policy was bought for trading purposes, it will be considered an allowable business expense and go towards reducing your tax bill.

Does the same apply if I am a Company Director?

Yes, and other benefits apply too. No income tax or National Insurance is payable on the premiums because they are not treated as a ‘benefit-in-kind. This means you could save half of what you would have paid for personal life insurance.

How does life insurance work if you are a contractor?

If you are a contractor running your business through a limited company, you can set up relevant life insurance through your business. It’s important to have relevant life insurance in place, along with other business insurances, such as public liability, if you are a contractor.

What can and can’t you claim as tax-deductible if you are Self-Employed?

There are a number of expenses you can claim for when you are Self-Employed. Some will depend on whether your business is just you, or if you employ staff, whether you work from home or use business premises as your base.

You can claim the following business-related expenses:

• Employees’ wages and redundancy payments
• Employer’s National Insurance Insurance and pension benefits for employees
• Employee childcare
• Cost of training employees
• Travel and accommodation on business trips
• Vehicle running costs – via business mileage

You can’t claim your own personal:

• Salary or dividends
• NI contributions and income tax
• Pension costs
• Life insurance
• Travel costs between your home and workplace
• The cost of buying a car

If you work from home you include a number of costs as business expenses such as:

• Cleaning
• Council tax
• Heating
• Lighting
• Mortgage interest
• Maintenance
• Water charges

You can’t claim for all your living costs. The amount you can claim is based on the area you use in your home for business purposes.

If you work from premises you can include these costs on your tax return:

• Cleaning costs
• Heating and Lighting
• Maintenance
• Rent and business rates
• Water rates

You can’t claim for the cost of the building and any refurbishments you make.

How can Protection Matters help if I’m Self-Employed and looking for life insurance?

Life cover is essential financial planning for everyone whose partner and children depend on you and the income generated by your business to survive financially. We can help you choose the provider and the policy that is right for you, your business and your family.

We can also guide you through the terms and conditions and submit the application on your behalf. In addition we can advise you on other insurances that are crucial when you’re Self-Employed, such as income protection, critical illness cover and health insurance.

This will save you a great deal of time and money. To discuss all your protection needs, call us today.