Is business insurance tax deductible?

3 min read | Published 14/06/2024

As a small business, you might have several different kinds of business insurance. But are these policies tax deductible? And if they are, how do you claim? We explain what you need to know with this simple guide.

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Is business insurance tax deductable
You need to keep a copy of all your business insurance policy documents in case HMRC decides to audit you.

Before we discuss the tax side of things, let’s examine the type of insurance businesses take out.

What types of business insurance are there?

There’s only one type of small business insurance that companies must have by law: employer’s liability insurance. This is a legal requirement if you have people who work for you. The only possible exceptions made are for public companies and businesses that only employ family members or overseas workers. 

This type of policy covers you if an employee is injured or becomes sick as a result of the work that they do for you.

Failure to have employer’s liability insurance could result in a £2,500 fine for each day the cover is not in place. 

You can find more information about this type of cover in our What is employers’ liability insurance? guide. 

Other business insurance you might want to consider include:

  • Public liability insurance: Covers you against claims made against you by members of the public. 

  • Contents and portable equipment insurance: Protects your physical assets such as technology equipment against fire, flood, theft, loss or damage.

  • Professional indemnity insurance: Designed primarily for businesses that offer advice or services. This cover protects you if one of your clients suffers financial losses as a result of your business activities.

  • Directors’ and officers’ liability insurance (D&O): Protects the founders and managers of your business against claims made against them as individuals, rather than the company.

  • Cyber insurance: Helps protect you against the financial implications of a cyber attack.

  • Commercial legal protection insurance: This covers you for any legal advice you might need, for example, an employment dispute.

Read more: Do you need business insurance?

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Is my business insurance tax deductible?

The good news is that most forms of business insurance are tax deductible. That’s because they count as allowable expenses.

This means that you can subtract the cost of your premiums before you calculate your taxable profit.

If you’re a limited company, you’ll pay less corporation tax. Whereas if you’re a sole trader, you can deduct the expenses before you calculate your income tax through self-assessment.

Remember, for an expense to be ‘allowable’, it usually has to be wholly and exclusively used for the business.

  • Employer’s liability insurance: This insurance is tax deductible. However, you might need to report the costs each year because the insurance could benefit your employees

  • Public liability insurance: The government website says that Public Liability Insurance is tax deductible

  • Contents and portable equipment insurance: This is an allowable expense and can be deducted

  • Professional indemnity insurance: This is also considered a business expense, and so premiums are tax deductible

  • Directors’ and officers’ liability insurance (D&O): According to the government document on the subject, premiums on a D&O policy should be tax deductible. 

  • Cyber insurance: This type of insurance should be tax deductible, including third-party cover

  • Commercial legal protection insurance: This is an allowable expense and therefore tax deductible

It can be a good idea to speak to a tax adviser before taking out a policy. They can tell you whether your premiums are deductible and what happens in the event of a claim.

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How do I claim business insurance as an expense?

If you’re a limited company, or self-assessment if you’re a sole trader, you start by deducting business insurance premium costs alongside any other allowable expenses. This is the starting point when calculating taxable profits for your corporation tax assessment.

Use the remaining profit figure to calculate how much tax you owe. For example, if you made £50,000 last year, but spent £5,000 on running costs that count as allowable expenses, your profit figure would be £45,000. That’s the amount you would pay tax on.

You need to keep a copy of all your business insurance policy documents. That way, if HMRC decides to audit you, you can use these as proof of your business insurance costs.

If you’re concerned about doing this yourself, you can use an accountant. As tax specialists, they can help ensure the calculations are correct and that all necessary costs are reported. You can also consult one to discover how to report the costs of employee liabilities and indemnity insurance on form P11D.

Do I need to keep records of my business insurance policies?

Yes, it’s really important to keep all of your policy documents safe in case HMRC decides to audit your business. 

Remember, the taxman can request proof of expenses going back six years. It's worth keeping policy documents and proof of payments, even once a policy has expired.

Where can I get tax advice?

The GOV.UK website has plenty of in-depth guides for small businesses who want to understand their tax position. If you want bespoke advice, you should consider an accountant or tax adviser. They can review all your accounts and help you ensure that your company is operating tax efficiently.

About Alex Ryde

Alex joined in 2019, bringing his expertise to a range of roles working in both the Analytics and Commercial teams. More recently he has stepped across to focus on Product, where he’s been focusing on scaling up the teams’ SME offering.

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