Running a business is full of risks — and having the right insurance is part of smart, responsible planning. But did you know that which business insurances are tax-deductible (and which aren’t) depends on who the policy protects, how it’s paid for, and who ultimately benefits? Whether you’re a sole trader or you run a limited company, the rules differ. Here’s your friendly guide to help you navigate this in a clear, straightforward way.
Sole Traders – what insurance is deductible (and what isn’t)
Life insurance
For a sole trader, any personal life insurance policy is not a business expense. Why? Because the policy isn’t wholly and exclusively for the trade: it’s about you personally.
So, if you have a life policy just covering you and your family, it cannot be claimed as an expense.
Medical/private health insurance
Similarly, if you take out private medical insurance that covers you personally (or your family), then it isn’t deductible. It’s a personal benefit, not an expense of your business.
Car (and van) insurance
If you’re using your personal car for business purposes, you’ll want to read our car expenses blog for a full breakdown. For insurance specifically, the premium is personal, so you generally can’t claim it as a separate business expense. Instead, you can claim your business mileage using HMRC’s approved mileage allowance — this covers fuel, insurance, wear and tear, and maintenance in one simple rate.
However, if you’re a sole trader with a van that’s owned and used purely for the business, it’s a different story. In that case, the van insurance premium is fully deductible, as it’s a necessary cost of running your business vehicle. Just make sure the van is genuinely used for business (not for personal errands or family trips) to stay on the right side of HMRC’s “wholly and exclusively” rule.
Other business insurances
Insurance policies like public liability, professional indemnity or other trade-specific cover are allowable because they’re wholly and exclusively for your business. If you’re a sole trader taking out, say, professional indemnity insurance because you provide a service, the premium is deductible.
Limited Companies – the rules
Life insurance: personal life cover vs relevant life insurance
If you’re a director of a limited company and take out a personal life insurance policy, that premium is not deductible because it benefits you personally (not the company).
However, there’s something called a Relevant Life Insurance policy: this is arranged by the company, for the benefit of an employee or director, and provided only the company pays the premiums, then it can be an allowable business expense — and crucially, without creating a benefit in kind (so no P11D to your director).
So for Limited Companies: life cover = not deductible; relevant life cover (via company) = deductible.
Key person (or “key man”) insurance
If your company takes out a policy to cover the risk of losing a key employee or director (for example, someone whose absence would hit the business), this policy can be deductible if the company is the beneficiary and receives any payout. If instead the benefit goes to the individual or their family, then it would not be wholly for the business, and the premium would not be deductible and may be treated as a benefit in kind.
Private medical insurance
If the company pays for private medical insurance for a director or employee, then yes: the company can deduct the premium as a business expense. BUT, because it is a benefit to the individual, it counts as a benefit in kind and must be reported on form P11D (or via payroll) and subject to Class 1A National Insurance.
So: deductible for the company, but reportable as a P11d item for the individual with personal income tax payable on the benefit.
Car (and van) insurance
When the company owns or leases the car, the company is covering the insurance. That cost is an allowable business expense for the company. If the car is provided for private use (including commuting), the car and its costs create a benefit in kind and must be reported (P11D). If you’re using a personal car and reimbursing mileage (rather than the company paying premiums), then only mileage is claimed, not the insurance premium separately. Our car expenses blog covers this in full.
For company-owned vans, the rules are a bit friendlier. Van insurance is fully deductible, and if the van is only used for business purposes, there’s no benefit-in-kind for the driver. If it’s also used privately (beyond normal commuting), then a small flat-rate benefit applies — much lower than the company car scale charges.
Everyday insurance (employer’s liability, public liability, professional indemnity)
These types of insurance are clearly business-related: they protect the company’s operations, employees, or liabilities. Therefore, the premiums are fully deductible and do not give rise to a benefit in kind.
When does an insurance premium become a benefit in kind (P11D)?
Here’s a quick checklist for LTDs:
- If the policy is paid by the company and the benefit of the policy goes to the director/employee personally (or their family), then it may be a benefit in kind and must be reported on the P11D.
- If the policy is paid by the company and the benefit is purely for the business (company is beneficiary), then this is a deductible expense, no P11D.
If you’re a sole trader, any policy that benefits you or your family personally is not deductible.
Good record-keeping is vital. Keep via your company’s records (for LTD) or your business records (for sole trader): premium receipts, policy documents, who benefits and how. If HMRC ever asks, you’ll be ready.
| Type of insurance | Sole Trader: Deductible? | Limited Company: Deductible? | Benefit in Kind? |
| Personal life cover | No | No | Yes (if paid by the company) |
| Relevant life insurance (company pays) | – | Yes | No |
| Key person insurance | No (unless payout to business) | Yes (if company-beneficiary) | Only if the benefit goes to the individual |
| Private medical insurance | No | Yes (but P11D applies) | Yes |
| Car insurance (company car) | Only via mileage allowance | Yes (company pays) | Yes (if private use) |
| Public liability / professional indemnity | Yes | Yes | No |
Conclusion
So there you have it — a clear breakdown of which business insurances are tax-deductible (and which aren’t!). Whether you’re running a sole trader business or operating through a limited company, remember: the key question is who benefits and who pays.
If you’re ever unsure, it’s worth having a chat (over coffee, virtually or in person) with your accountant — and yes, that absolutely includes a friendly hello from us here at DNA Accountants! We’d be delighted to help you review your insurance cover, ensure it’s tax-efficient, and keep your records squeaky clean.