Updated: December 14, 2022
Group Income Protection Taxation Rules
Want to know more about the tax rules for Group Income Protection insurance? This guide will outline everything you need to know
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Author: Richard Angliss - Finance Expert
Updated: March 05, 2020
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.
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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.
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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.
Ask a quick question
We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in group income insurance. Ask us a question and we'll get the best expert to help.
Richard Angliss
Finance Expert
About the author
Richard Angliss has made a career in financial services which stretches over 40 years.
His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.
For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.
At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.
With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them. Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.
He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.
