While most turn to contracting for the benefits it brings like flexibility in working hours, high day rates and income, it’s also true that Contractors lose out on a lot of the benefits that being ‘traditionally employed’ offers. Benefits like sick pay, contribution to your pension and cover for legal liabilities.
There is, however, one benefit you do gain when you run your own LTD company: it’s called Relevant Life Insurance.
Essentially, Relevant Life Insurance was put in place to afford small businesses the opportunity to benefit from the same tax breaks large corporations enjoy through group life schemes. More simply, it’s life insurance that’s tax efficient for Directors (or employees) of LTD companies.
To unpack the value that Relevant Life Insurance brings, let’s use the example that you own your own company and pay £100 a month from your own pocket and post-tax income for life insurance. The likelihood is that it’s costing your company more than it should.
If you’re a 40% taxpayer, there’s income tax and 2% employee national insurance contribution, plus 13.8% employers’ national insurance contribution.
In fact, after 19% corporation tax relief, the net cost to your company works out at £158.93 per month for you to pay for the policy personally.
With Relevant Life Insurance you can make some serious savings in what you are paying by expensing your life insurance through your company. If you pay £100 a month for a Relevant Life Plan you won’t pay any national insurance contributions or income tax on the premiums but you still get the 19% corporation tax relief, making the net cost only £81 per month.
That’s a huge saving of £77.93 a month or £935.16 over the year
Not only that, if you are nearing the end of your tax year and have profits in your company that could be taxed, paying for your life insurance in one lump sum can help to reduce your corporation tax bill.
With the savings that can be made, it is well worth investigating if Relevant Life Insurance is right for you as a LTD company director.