Group Income Protection Taxation Rules
Whether you’re a member of a group income protection scheme through your employer or an employer providing benefit to your staff, this guide answers your questions about the taxation on premiums for cover, how benefits are taxed and everything in between.
Read on for a full understanding of the taxation treatment or click a link to jump ahead:
What tax implications are there on group income protection schemes?
If an employer offers their staff income protection insurance as a company benefit, it’s usually treated as a business expense, allowing the firm to offset the cost against their corporation tax liability.
Due to this, when benefits are paid out in the event of an employee claim, the money paid from the group income protection scheme is almost always subject to income tax.
Treatment on premium payments
Employers paying premiums on group income protection schemes for their employees can usually claim corporation tax relief on them.
Income tax treatment
In the event of a claim, the benefit is taxed as though it were earned income from the employer.
Payouts from a group income protection scheme are paid to the employer as a salary continuance, it is then the company’s responsibility to distribute it to the employee through the usual PAYE system.
Do HMRC treat plans as a p11d benefit in kind?
No, group income protection plans aren’t treated as a P11D benefit by the HMRC.
Can I get any tax relief on a group income protection plan?
As an employer providing group income protection to your employees as a benefit, premiums are tax-deductible so you can offset the cost against your profits.
Benefit paid under a group income protection plan is taxable as a trading receipt but when the benefit is paid out to your employee it will be deductible as a business expense.
What happens with National Insurance contributions?
The money you, as the employer, pay to a member under the scheme is treated as earned income. Therefore, income tax and National Insurance contributions will need to be paid in the same way as they would be on the member’s salary.
When setting up a group income protection scheme it’s possible to cover your liability to pay National Insurance contributions on a member’s benefit claim.
Are benefits from a group income protection policy taxable?
Yes, although by the time you receive the benefit from your employer the tax will already have been paid.
The benefit is paid directly to the company who owns the policy, i.e. your employer, and is put through the PAYE system and treated in the same way your salary would be.
If, however, you had an individual income protection policy you’d be paying premiums out of your taxed income, therefore benefits from an individual plan would normally be paid tax free.
Speak to an expert
If you’re a business owner wondering about the tax implications of offering your employees group income protection as a company benefit, speak to one of the business protection experts we work with.
They will be able to help you understand how the insurance products work for both you and your staff members, and make sure you have a full-picture of the costs involved with providing this particular benefit.
Call 0808 189 0463 or make an enquiry for a free, no-obligation chat and we’ll match you with one of the independent financial advisors we work with.