Last updated: 14 October 2026
Can a company deduct the cost of insurance from its profits?
Yes, in most cases. Insurance that protects the business, such as public liability, employer’s liability, professional indemnity, buildings, contents, stock and vehicle insurance, is deductible for corporation tax as it’s incurred wholly and exclusively for the trade. Key person insurance can also be deductible if it’s taken out to cover a loss of profits. Insurance for the directors’ personal benefit is normally treated as a benefit in kind, not a business cost.
Common types of insurance
| Insurance | Deductible? | Notes |
| Public and employer’s liability | Yes | Employer’s liability is usually a legal requirement |
| Professional indemnity | Yes | Common for consultants |
| Buildings and contents | Yes | For business premises |
| Motor insurance for company vans and cars | Yes | Private use of a car is a benefit in kind |
| Key person insurance | Usually yes | If for loss of profits, short-term and the person isn’t a major shareholder |
| Relevant life policy | Yes | Not a benefit in kind if it meets the rules |
| Private medical insurance for staff | Yes, for the company | Benefit in kind for employees |
| Directors’ and officers’ liability | Yes | Not a benefit in kind |
| Personal life insurance for a director | No | Taxable on the director |
Key person insurance
HMRC’s guidance says key person premiums are deductible if:
- the policy is to cover loss of profits from the death or illness of a key employee
- the person isn’t a significant shareholder
- it’s a short-term policy, such as term assurance
If the premiums are deductible, any payout is taxable. If not, the payout is generally not taxable.
Relevant life policies
A relevant life policy lets a company pay for death-in-service cover for an employee or director. The premiums are deductible and aren’t a benefit in kind. Payouts go to the family through a trust and are free of IHT.
Example
Northgate IT Ltd pays £2,800 a year for professional indemnity, £600 for public liability and £1,200 for a relevant life policy for its director. All £4,600 is deductible, which saves £1,150 if the company pays the 25% main rate, or £874 at the 19% small profits rate.
Insurance tax
Insurance premiums include insurance premium tax (IPT), usually 12%. IPT isn’t VAT, so it can’t be reclaimed, but it’s part of the deductible cost.
Claims and payouts
If a policy pays out for lost stock or profits, the payout is taxable as trading income. Payouts for damaged assets, such as a building, may affect capital allowances or CGT.
Common mistakes
- Deducting a director’s personal life cover as a business expense
- Claiming the whole of a home insurance policy when only part of the home is used for work
- Deducting a multi-year premium in one go instead of spreading it over the years it covers
- Forgetting to include insurance payouts as income
Frequently asked questions
Is a director’s private health cover deductible?
Yes, for the company, but it’s a benefit in kind.
Can a sole trader deduct insurance?
Yes, for business insurance.
Is home insurance deductible?
Only a business proportion, if you work from home.
Do I need a policy for each type of risk?
Many insurers offer combined policies.
Related: deducting a personalised plate, life insurance and IHT and taxi costs for companies.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with company tax and expenses. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
