Life policies can provide savings for hard-up businesses

When cash flow is tight and money supply is an important factor in how you run your business, there are often areas of savings which you overlook purely because you're concentration and focus is on getting new business or trying to improve your efficiency.

If you are a company director or partner in a business or indeed a key employee you may be able to get the tax man to help pay for your life insurance and protection cover. Since the removal of tax relief on pension term assurance there has been no real way of subsidising the cost of your business or personal life cover – until now!

Relevant Life Policies are a way of providing death-in-service benefits on an individual basis no matter how big or small your business is.

Although the company or partnership pays the premiums, they're not treated as a benefit in kind, and so would not be included in your income tax assessments.

This can provide a significant saving, particularly if you pay higher rate tax.

A typical cost comparison would see an ordinary policy for a higher rate tax payer with a net premium of £1,000 per year gross up to a total cost of £1,570. This takes into account Employee's National Insurance @2% of £34.00, Income tax @40% of £690.00, Employer's National Insurance @13.8% of £238.00 giving a total gross cost of £1,962 less the companies Corporation tax @ 20% of £392.00.

Conversley, the Relevant Life policy would have the same gross cost of £1,000, but as it does not come under the benefit in kind rules there are no National Insurance or income tax payments to be made, so you simply can deduct the Corporation tax @20% of £200.00 and your net cost for exactly the same policy now only costs £800.00 (this assumes that corporation tax relief has been granted under the 'wholly and exclusive' rules).

This shows a massive saving on costs of £770.00, its nearly half price.

For further details of how to achieve savings on your life and protection costs call Frank Cochran on 01902 422333.

FSC Investment Services Limited is Authorised and Regulated by the Financial Services Authority.