Tax Deductible Income Protection
In the dynamic business world, safeguarding key personnel is paramount for sustained success. Executive Income Protection (IP) is a strategic tool that not only protects the financial wellbeing of key executives but also offers compelling advantages for businesses.
Have you considered not only your own financial security, but also the impact on the ongoing performance of your business if you or another key individual was unable to work for a prolonged period (or even just a matter of weeks) due to illness or injury?
One of the central benefits of Executive IP is its role in securing the financial stability of key personnel. In the event of long-term illness or disability, this insurance provides a steady income stream to executives, ensuring they can maintain their standard of living and meet financial commitments. This not only protects the executives but also ensures business continuity by retaining valuable leadership talent.
I’ve recently seen several company directors whose income would be at risk if they were unable to work. Often, they had not considered protecting this risk as a company expense. Several of those who have applied for this insurance have been able to insure income of £20,000 per month. When looking at what to protect, we can consider their:
- P11D benefits
- Spouse/registered Civil Partner earnings and dividends
- Employer pension contributions
- Employer National Insurance
Cost efficient and tax-smart
An Executive IP policy is arranged, paid for, and owned by the employer, with premiums funded through the company as a business expense, making cover significantly cheaper than cover paid for personally.
From a tax perspective, Executive IP can be a savvy investment for businesses. Here’s how it works –if the insured employee has an injury or illness and is unable to work, the employer can make a claim. The policy benefits are paid to the employer who then pays the employee via the usual PAYE arrangement and the policy proceeds fund the employee’s ongoing sick pay. Because the policy benefits are paid to the employer, they are treated as trading income for Corporation Tax purposes, and the payments through PAYE are treated as a trading expense, leading to a tax-neutral position.
Furthermore, offering Executive IP can enhance a company's reputation as your company will be seen as one that prioritises the well-being of its key personnel. This can be a powerful tool for attracting and retaining top-tier executive talent, as individuals are increasingly mindful of their financial security and aware of the risks associated with unforeseen health challenges.
Davenport Thomas understands protection needs for our accountancy connections and their clients. For a discussion about how we can help, you can book directly into David’s diary via Calendly, email or call.
David's contact details are:
Tel number 0208 8192407
Email is [email protected].
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Financial protection policies typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.