Executive Income Protection Tax Treatment: What Directors Need to Know

Executive income protection tax treatment is straightforward: premiums qualify for corporation tax relief as a business expense, there's no benefit-in-kind charge for the director, and any claim benefit is paid to the company completely tax-free. This is one of the most tax-efficient forms of income protection available to UK company directors.

Key facts

• Premiums qualify for corporation tax relief as a business expense.
• There is no benefit-in-kind charge on executive income protection premiums.
• Any claim benefit is paid to the company completely tax-free.
• The director then receives the benefit from the company via payroll, subject to PAYE and National Insurance in the normal way.
• Executive income protection insures salary and dividends together, up to 80% combined.
• Tax treatment depends on individual circumstances; always confirm with an accountant or tax adviser.

How Are Executive Income Protection Premiums Taxed?

Premiums are treated as a business expense, qualifying for corporation tax relief in the same way as many other legitimate company costs (see gov.uk guidance on expenses and benefits). This means the premium reduces the company's taxable profit, lowering the true cost of cover below the headline monthly figure.

Does the Level of Relief Depend on Company Size?

Relief follows the normal corporation tax rules that apply to the company overall, so the effective saving depends on which corporation tax rate the company pays. Current rates and thresholds are set out on gov.uk's corporation tax rates page, and this should be checked against your company's own position rather than assumed.

Is Executive Income Protection a P11D Benefit?

No. There is no benefit-in-kind charge on executive income protection premiums for the director. This is one of the main reasons directors favour executive income protection over funding a personal policy from taxed income. As with any tax position, it's worth confirming current treatment with your accountant before setting up cover, since legislation can change.

How Is a Claim Benefit Taxed?

The benefit is paid to the company completely tax-free, and the company then pays it on to the director through payroll, meaning it's subject to PAYE and National Insurance at that point, in the normal way. This is different from many personal income protection policies, where the benefit usually reaches the policyholder directly. We compare the two routes in executive income protection vs personal income protection.

Executive Income Protection Tax Treatment: Corporation Tax

Because the premium is generally allowable against corporation tax, the true cost to the business is typically lower than the headline premium once tax relief is applied, similar in principle to other qualifying business expenses. Exact figures depend on your company's corporation tax position at the time, so we'd always recommend checking the current rate on gov.uk's corporation tax rates page and confirming with your accountant.

Should I Confirm the Current Rate with My Accountant?

Yes. Corporation tax rates and thresholds can change with each Budget, and the exact saving from premium relief depends on the rate your company pays at the time. Confirming the current position with your accountant before relying on a specific figure is good practice.

Executive Income Protection Tax Treatment: Summary

In short: executive income protection premiums are a deductible business expense qualifying for corporation tax relief; there is no benefit-in-kind charge on the premium; and any claim benefit is paid to the company tax-free before being passed to the director via PAYE. This is a general summary, not tax advice, and individual circumstances should be confirmed with an accountant.

Getting Professional Tax Advice

Tax treatment depends on individual circumstances and current legislation, both of which can change. Before setting up or relying on a particular tax position, get advice from an accountant or tax adviser who can look at your company's specific situation. For cost factors that sit alongside the tax picture, see our cost and quote guide.

FAQs

Is executive income protection tax deductible?

Yes. Premiums are treated as a business expense qualifying for corporation tax relief, in the same way as many other legitimate company costs. Individual circumstances should still be confirmed with an accountant.

Is executive income protection a P11D benefit?

No. There is no benefit-in-kind charge on executive income protection premiums for the director, which is one of the main reasons directors favour it over a personal policy.

How is an executive income protection payout taxed?

The benefit is paid to the company completely tax-free, then paid on to the director through payroll, meaning it's subject to PAYE and National Insurance at that point.

What is the corporation tax treatment of executive income protection premiums?

Premiums are deducted from company profit before corporation tax is calculated, in the same way as other qualifying business expenses, which reduces the true cost of cover below the headline premium. The exact saving depends on the company's corporation tax position.

Do I need an accountant to check the tax treatment of executive income protection?

Yes, we'd recommend it. Tax treatment depends on individual circumstances and current legislation, both of which can change, so confirming with an accountant or tax adviser before setting up cover is good practice.

Want tax-efficient cover set up correctly from the outset? Speak to us about setting up executive income protection and we'll work alongside your accountant to get the structure right.

Written by

Alex Ogden DipFA | Director | Executive Life

Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the London Institute of Banking and Finance (LIBF). He is authorised by the FCA, Ref: AJO01072. View the FCA register entry.

This article is for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change in future. Executive Life is authorised and regulated by the Financial Conduct Authority. Speak to a qualified adviser before making any decisions based on this content.