Originally posted by l35kee
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The first kind of income protection insurance can be purchased for the individual by the company. It counts as a business expense. It is also a benefit in kind in this case, which means you pay income tax on the premiums, even though you haven't received it. In this case, our friend's argument that this is "income" is pretty reasonable, and HMRC would agree with him. The company is buying something for the person that he might well buy for himself out of after-tax funds, and it works out pretty close to the same thing as if he did.
The second kind of income protection insurance can be purchased for the company by the company. If you become ill or whatever, it pays funds to the company. This is a legitimate business expense, like any other business insurance. It is insuring the business against loss of revenue. This is the kind of insurance that he is apparently discussing.
He said above that if the company didn't pay for it, he would be paying for it out of his personal account that has already been taxed. I'm sorry, but that simply isn't true. If the insurance is not a benefit in kind, then it is the second kind of insurance, not the first kind, while the kind he would buy for himself is the first kind.
In saying, "My point has nothing to do with claims" it shows that he doesn't actually understand the difference between the two kinds of insurance, and perhaps even a fundamental misunderstanding of the distinction between him and his limited company. One insurance insures his income, the other insures his company's income. I think, based on prior posts, that he DOES understand the difference between his income and his company's income, but for avoidance of any doubt, these are two different things. His company's income is taxed as profit at corporate tax rates but is not his until it is extracted as salary or dividend, at which point it becomes subject to income tax.
Insuring the company's income gains him nothing unless/until he extracts that income and pays tax on it. The insurance premium is not income to him because it is not buying anything that gains him personally anything. It is buying something for the company. That something could benefit the company later, and if it does, it will eventually result in income for him which will be taxed. But that insurance is not buying him anything.
It matters because income protection insurance is expensive and between that and the accountancy fees is probably more than 2/3 of his monthly expenses. It shoots significant holes in the argument that expenses are income when most of your expenses aren't.
If his life insurance is a relevant life plan he has an argument there. It's effectively tax-free income, as is the mobile phone. These are things you would probably buy for yourself if they weren't provided, and are often not necessary for the business. There are a few things HMG allows employers to do for employees without grubbing around for every pence of tax they can seize.
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