My business (Limited Company, sole director) has received a large payout against a critical life policy. Is this regarded as profit because I want to invest it into expanding the business and would like to keep the companys exposure to Corporation tax as low as possible. Any suggestions as to how we could do this?
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Who paid the premiums?
I am rather puzzled how a company with only one director came to receive the proceeds of a critical life policy, but the basic rule is that if the company paid the premiums and claimed them as a deduction from profits for corporation tax purposes, the company will be liable to pay corporation tax on the proceeds.
I read this as the director received the funds and wants to introduce the funds to the Ltd company.
Can the OP please clarify the situation?
The premiums...
... aren't really all that relevant. The receipt is either taxable or it isn't. If the receipt is taxable and the company didn't claim tax relief on the premiums, then somebody has messed up.
You still don't say WHY? the company received the payout. Presumably somebody died (although it's entirely unclear who) and the company was the beneficiary under the policy.
What is important is the relationship between the company's business and the somebody that died. On the further assumption that the somebody was critical to the running of the business, then (assuming all other assumptions are correct), then it's a taxable receipt.
Whether or not you try and hide it in the balance sheet is up to you.
@ Steve K - critical illness cover does not just pay out on death (if part of a life insuance policy), but on the diagnosis of a specified illness (most cancers are included). I had to deal with one last year.
IMHO, it is usually a big mistake to try to claim tax relief on the premiums, as any CT will far outweigh the premium releif. I assume it formed part of a "Key Man" insurance type arrangement?
@ King_Maker
Not claiming tax relief does not prevent a receipt under the policy being taxable (see BIM45525). If any receipt is going to be taxable, it would be foolish not to claim relief for the premiums though.
The OP had described it as a payout against a critical life policy, which drew my first assumption.
Steve K - agreed. There is no point in not claiming tax relief, if the proceeds are going to be taxable.
@ Jarvo1234
Absolutely no help whatsoever i the context of the question, just wanted to wish you well.
Hi , I am in the same position myself , diagonised with a melanoma , been removed but obviously ongoing , I own the company and the premiums were paid by the company , how do I get the money out of the company to pay off my mortgage , will I pay tax , or as some one suggested , shall I pay it into my pension and hopefully draw it later