unortunately an answer for you that isn't quite black and white but rather just throws more variables in the pot.
it all depends who the beneficiary of the policy is and the actual type of insurance.
If the beneficiary is the business then it is allowable. If the beneficiary is the owner then it is not (but see the life insurance glitch in that below).
These are qute common with limited companies. Not completely sure how such would work with a sole trader where there is a lack of seperation between the owner and the business. Hope someone else can come on board to fill out their thoughts on that one.
You state health and life insurance but those could be quite different types of insurance to what you are thinking that they are and you need to see the policies to make sure that your client has taken out the correct sort of insurance to be an allowable expense.
For health insurance the policy could be something called Permanent Health Insurance (PHI). This is insurance taken out to cover the debts of the business in the eventuality that the person running the busines is unable to work.
For life insurance that could be key person insurance that basically insures the business against the loss of a key member of staff or management. If your client has taken out a business loan then the bank may have pushed that option in addition to other securities so that in the event of default they go after the estate but in the event of death the loan is repaid from insurance leaving the deceased's estate to their family.... Which is sort of life insurance for personal benefit by the back door but in that instance allowable as it was the business that benefited.
Sometimes key person and PHI terms are used interchangably but the reality is that they are quite different types of insurance.
As I say, my experience with this is from the incorporated side of the fence and their may be differences for the self employed. The key though is that this is not necessarily a black and white yes / no type scenario.
Hope that helps but I suspect that it has just confused matters further,
kind regards,
Shaun.
p.s. amended only for spelling
-- Edited by Shamus on Sunday 10th of February 2013 06:59:20 PM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I am just wondering if someone can help, basically I have a sole trader who has taken out life insurance through the business bank account and Healthcare insurance through the business bank account, as he does not employ anyone I have put this to his drawings as I believe this is not an allowable expense. Can someone please confirm my train of thought is correct or am I wrong?
For life insurance that could be key person insurance that basically insures the business against the loss of a key member of staff or management. If your client has taken out a business loan then the bank may have pushed that option in addition to other securities so that in the event of default they go after the estate but in the event of death the loan is repaid from insurance leaving the deceased's estate to their family.... Which is sort of life insurance for personal benefit by the back door but in that instance allowable as it was the business that benefited.
Hi Shaun
This has dogged me for ages, and am still not convinced fully one way or another but sway towards not allowable. It is not allowable as a tax allowance for sole traders, or partnerships
If a premium is paid to cover the cost of a loan, would that not be a capital expense? as it basically protects the owners (I mean in terms of soletraders and partnerships). I can understand the key person policy in a ltd company (which is an allowable expense for the company)
BIM45815 is one part of tnhe manuals that covers it
Quote
Life insurance premiums
The allowable expenses listed in Section 58 (2) form a class that would include any incidental costs of taking out a life insurance policy (for example a mortgage protection policy) but not the cost of the policy itself, that is, the premiums.
