Current guidelines state that tax relief may be given on the premiums if:
If tax relief is given on the premiums then the likelihood is that proceeds will be taxed, but this may not always be the case.
The premiums paid by the policyholder/employer should not normally be treated as a P11D expense for the employee.
For the employer, the premiums should normally qualify as a business expense, provided that the employee/person insured doesn’t have a controlling financial interest in the business, and that premiums are paid by the business for the purposes of the businesses financial protection.
This is based on our current understanding of the HMRC guidelines and should be checked by the policyholder, their financial adviser and their accountant with their local HMRC office.
In the event of a valid claim, benefits paid under Executive Income Protection will be treated as a trading receipt. The benefit will also be treated as a trading expense when it’s used to fund sick pay for the employee, resulting in a neutral tax position.
The main benefit should normally be passed on to the employee through PAYE after deduction for Income Tax and National Insurance. The business will also need to pay employer’s National Insurance Contributions and continue to fund any pension scheme contributions in respect of the employee’s salary.
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