01582 390 100 or Contact Us

For contractors who have no permanent employer to provide them with health insurance, purchasing it through their limited company may seem like a good idea.

In permanent employment, health insurance is often offered as a benefit. As a contractor working through your own limited company, this is not the case.

Reduce your tax bills

Save time, money and hassle with our limited company accounting services.

Private health insurance can be vital for contractors, as it puts you in control of when and where you’re treated and can help reduce your time spent out of work due to injury.

While it’s possible for a contractor to take out a health insurance policy and expense this through their limited company, this is often not tax-efficient as it incurs benefit-in-kind charges.

HMRC deems it a necessity for everyone to have access to regular healthcare, which means health insurance fails the business-related expense test of being “wholly, exclusively and necessarily for business”. As health insurance is classed as a benefit-in-kind, income tax and NIC’s 1A will need to paid on the P11D.

There are some types of insurance, however, that may be claimed as business-related expenses without incurring benefit-in-kind tax.

Key-man cover

Key-man cover is the name given to insurance that offers financial protection to a company against long-term injury or the death of a key employee or director.

This type of policy is worth considering if your company relies on an individual or individuals that are vital to the success of the company. It’s also possible for the policy to be paid out in the event of the key person being diagnosed with a specified critical illness, such as cancer or a heart attack.

This type of insurance is ideal for contractors working through a limited company as they are key to its success.

Relevant Life insurance

Another type of insurance you can claim through your limited company is Relevant Life insurance.

Relevant Life is designed to pay a lump sum if the employee insured on the policy dies or is diagnosed with a critical illness, while employed by the company and during the term of insurance cover.

Relevant Life insurance may be claimed as a business related expense, before any corporation tax is payable, which offers the company significant corporation tax savings.

This makes Relevant Life more tax-efficient than other types of health insurance as it’s the only type that can be paid by the limited company but still allows the employee or director to personally benefit from the payouts and tax savings.

Other business-related expenses

Insurance is only one example of business-related expenses you can claim when you set up your own limited company. From subsistence and vehicle running costs through to office equipment and even your accounting fees, there are many expenses you can claim tax relief for.

By identifying the different types of tax relief you are eligible to claim through your limited company, you’ll be able to reduce your corporation tax bill, increasing your profit and the amount of income you can take home as a company employee or director.

Cobia Accounting specialises in accounting and taxation services for contractors and small businesses that save you time and money. To learn more about how we can help reduce your tax bill, contact us today.