By
Harris Frazer
Here's an opportunity that small business owners should not miss.
As a director of a small private company you will have worked hard to build your business and provide a quality of life for you and your family, and you would want them to continue to enjoy that security if anything happened to you.
So you may well have life assurance to cover this eventuality.
But how have you been paying for it? If it is from your personal bank account, then it will be from money that has already been hit by the taxman. You may decide to put it through the company in the hope of by-passing this hurdle.
Unfortunately the Revenue are one step ahead of you, and the payment will be taxed as a benefit. If you don't declare it, you could be liable to tax penalties.
Smaller companies are now entitled to the benefits enjoyed by larger firms
You have probably noticed that employees of larger business and especially the public sector seem to get away with this. This is because pensions law allows employers to provide something called "registered death in service" schemes, but they are quite complicated and smaller companies have found it tough to access this valuable benefit.
However, things are changing and as a result of recent amendments to pensions law, small companies can now receive the tax benefits that large companies have been entitled to. They can set up a simpler type of life cover, which is paid by the company and with similar tax breaks enjoyed by larger firms.
There is no longer any need to go through a complicated registration process, which can now be set up for any size of company. For smaller companies, substantial savings can be made where the employer is taking out the policy on the life of the employee. The premiums will be deductable as a business expense.
What are the tax benefits?
● No tax penalties on the director
● Premiums will normally be allowed as a business expense
● Benefits are paid to the director's dependants and are normally free of corporation, income or inheritance tax.
A taxpayer paying tax at 40 per cent and subject to national insurance contributions, can save around 47 per cent over a personal policy.
Harris Frazer is a director of Manchester-based financial planning company Jelf