Tax Deductible Guide
Insurance is an essential cost for many businesses. The good news is that, in most cases, the premiums you pay for business insurance are fully tax-deductible as an allowable expense. This guide explains which insurance policies are deductible and what you need to know.
For a complete overview of all business expenses, see our guide: Allowable Expenses.
Which Insurance Policies Are Tax-Deductible?
Generally, if the insurance is ‘wholly and exclusively’ for your business, the premium is tax-deductible. This is a fundamental rule of tax relief.
1. Professional Indemnity Insurance
What it is: Covers you against claims of negligence, breach of duty, or other errors in the services you provide.
Deductible?: Yes. This is a standard business expense for professionals like consultants, IT contractors, and architects.
2. Public Liability Insurance
What it is: Covers you if a member of the public suffers injury or property damage due to your business activities.
Deductible?: Yes. This is a common expense for many businesses, especially those that deal with the public or work on client premises.
3. Employers’ Liability Insurance
What it is: Legally required if you employ any staff. It covers you if an employee claims for injury or illness caused by their work.
Deductible?: Yes. This is a statutory expense and is fully deductible.
4. Business Interruption Insurance
What it is: Covers you for loss of income if your business has to close temporarily due to an insured event (like a fire or flood).
Deductible?: Yes. This is a cost of protecting your business.
5. Business Buildings and Contents Insurance
What it is: Covers your business premises and contents against damage or theft.
Deductible?: Yes. This is a standard business expense.
6. Commercial Vehicle Insurance
What it is: Insurance for your business vehicle (van, truck, etc.).
Deductible?: Yes. The insurance cost for your commercial vehicle is a deductible expense. If you use a vehicle for private use as well, you need to apportion the cost.
7. Key Person Insurance
What it is: Insurance on the life or health of a key individual in the business.
Deductible?: Generally, no. HMRC does not usually allow a deduction for key person insurance premiums, as the benefit is often considered a capital receipt.
8. Legal Expenses Insurance
What it is: Insurance to cover legal costs in certain situations.
Deductible?: Possibly, if it’s directly related to your business. You should seek professional advice.
Personal Insurance Policies
You cannot claim a tax deduction for insurance that is primarily for your personal benefit, even if you are self-employed.
- Life Insurance: Generally not deductible, unless it’s specifically required as part of a business loan agreement (and then only the premium portion related to the business).
- Critical Illness or Income Protection: These are usually considered personal insurance and are not deductible.
What About Car Insurance?
If you use your car for business, you can claim a proportion of your car insurance. The deductible amount is based on the proportion of business mileage. For example, if you use your car 50% for business, you can claim 50% of your car insurance premium.
You can also claim the mileage rate (45p/mile) instead of actual costs, which is simpler. See our guide: Mileage Claims.
How to Claim Insurance Costs
You should include your insurance costs on your Self Assessment tax return. They are usually listed under ‘General business expenses’.
For the best results, keep detailed records:
- Receipts: Keep the invoice from your insurer.
- Policy Documents: Keep a copy of your insurance policy to show what it covers.
- Bank Statements: The payment will show on your bank statement.
Example
You run a small consultancy business. You pay:
- Professional indemnity insurance: £500
- Public liability insurance: £200
- Business contents insurance: £150
- Car insurance (50% business use): £400 (50% = £200 deductible)
Total deductible insurance costs: £500 + £200 + £150 + £200 = £1,050
How We Can Help
Insurance can be a significant business cost. Our ACCA-qualified accountants can:
- Review your insurance policies to confirm which are tax-deductible.
- Ensure you have claimed the correct amount.
- Help you maximise your overall expense claims by ensuring you don’t miss any.
Let us review your insurance costs and maximize your tax deductions.
📚 Related Guides
• Self-Employed Allowable Expenses
• Mileage Claims for Self-Employed
• Equipment Purchases & Capital Allowances
• Record Keeping for Self-Employed
• Self-Employed Tax Return Checklist
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