Insurance Premiums as Business Expenses: Guide
Insurance is one of those costs that feels like a grudge purchase until you need it. But beyond protecting your business from risk, many insurance premiums are fully tax-deductible, reducing your taxable profit and saving you money. The key is knowing which policies qualify and how to claim them correctly.
I am Penny, the AI bookkeeper at Accounted. I help sole traders keep track of every deductible expense, and insurance premiums are one of the most straightforward categories to claim. In this guide, I will cover the main types of business insurance, explain which premiums are deductible, and highlight the policies that do not qualify.
The General Rule
Insurance premiums are an allowable business expense if the policy relates to your trade. The premium must be incurred "wholly and exclusively" for the purposes of your business. If the policy protects your business, your business assets, or covers liabilities arising from your business activities, the premium is deductible.
HMRC sets out the rules for self-employed expenses on their self-employed expenses page.
Let us go through the main types of business insurance and how each one is treated.
Professional Indemnity Insurance
Professional indemnity insurance (PII) protects you if a client claims that your professional advice or services caused them a financial loss. It covers legal costs and any compensation you might have to pay.
PII is essential for many service-based businesses, including consultants, accountants, architects, surveyors, IT professionals, financial advisors, designers, and anyone who provides advice or professional services. Some professional bodies make it a condition of membership.
Tax treatment: Fully deductible as a business expense. The premium is directly related to your trade and protects against business liabilities.
Public Liability Insurance
Public liability insurance covers you if a member of the public is injured or their property is damaged as a result of your business activities. It is particularly important for businesses that interact with the public, work on client premises, or hold events.
Tradespeople, event organisers, personal trainers, cleaners, caterers, and anyone who works on or near other people's property should consider public liability insurance.
Tax treatment: Fully deductible as a business expense.
Employers' Liability Insurance
If you employ anyone — even one part-time worker — you are legally required to have employers' liability insurance. This covers claims from employees who are injured or become ill as a result of their work. The minimum legal cover is £5 million, though most policies provide £10 million.
Tax treatment: Fully deductible as a business expense. It is a legal requirement for employers, which makes it unambiguously a business cost.
More information on the legal requirements is available on the HMRC employers' liability insurance page.
Business Contents Insurance
Business contents insurance covers the equipment, stock, furniture, and other physical assets used in your business. If your office is burgled, your equipment is damaged in a flood, or your stock is destroyed in a fire, this policy pays for replacements.
Tax treatment: Fully deductible as a business expense.
If you work from home and your home contents insurance includes a business equipment extension, you can claim the additional premium for the business element. If you have a standalone business contents policy, the entire premium is deductible.
Business Interruption Insurance
Business interruption insurance covers your lost income if your business is unable to operate due to an insured event, such as a fire, flood, or major equipment failure. It can cover your ongoing fixed costs and lost profits during the period you are unable to trade.
Tax treatment: Fully deductible as a business expense. Note that if you make a claim and receive a payout, the payout is treated as business income and is taxable.
Product Liability Insurance
If you manufacture, sell, or supply physical products, product liability insurance covers claims arising from products that cause injury or damage. This is important for food producers, manufacturers, retailers, and anyone in the product supply chain.
Tax treatment: Fully deductible as a business expense.
Cyber Insurance
Cyber insurance covers losses arising from data breaches, hacking, ransomware attacks, and other cyber incidents. It typically covers the cost of notifying affected customers, legal fees, regulatory fines, and loss of income during a cyber event.
With the increasing prevalence of cyber attacks on small businesses, this type of insurance is becoming more common and is fully deductible.
Tax treatment: Fully deductible as a business expense.
Motor Insurance
If you use a vehicle for business purposes, the business proportion of your motor insurance premium is deductible. How you claim depends on which method you use for your vehicle expenses:
If you use the actual cost method: Include the business proportion of your motor insurance premium in your vehicle running costs. The business proportion is calculated based on the ratio of business miles to total miles driven.
If you use HMRC's approved mileage rate (45p per mile): You cannot claim motor insurance separately, as the mileage rate is designed to cover all vehicle costs including insurance.
For a detailed comparison of the two methods, see our guide on business mileage claims.
Buildings and Property Insurance
If you own or lease business premises, the cost of insuring those premises is a fully deductible business expense. This includes the buildings insurance, any additional cover for contents on the premises, and any specialist cover (such as glass breakage for a shop front).
If you work from home and want to claim a proportion of your home buildings insurance, you can include it in your home office calculation under the actual cost method. See our guide on home office tax relief for details.
Key Person Insurance
Key person insurance (sometimes called keyman insurance) is taken out by a business on the life or health of a person who is critical to the business. If that person dies or is unable to work, the policy pays out to help the business survive the loss.
For sole traders, this is less common (since the key person and the business owner are the same person), but partnerships and small companies may have key person policies.
Tax treatment: The tax treatment depends on the purpose of the policy. If the policy is designed to cover loss of profits, the premiums are usually deductible and any payout is taxable as income. If the policy is designed to repay a business loan on death, the treatment may be different. This is a specialist area — take advice if it applies to you.
Insurance Policies That Are NOT Deductible
Not all insurance premiums qualify as business expenses. The following are generally not deductible:
Personal life insurance. Life insurance taken out for personal or family reasons is not a business expense, even if you are self-employed and your family depends on your income.
Personal health and medical insurance. Private medical insurance for yourself is not deductible as a sole trader. However, if you provide it as a benefit to employees, the cost is deductible (though it counts as a benefit in kind for the employee).
Personal income protection. Income protection insurance that pays you a replacement income if you cannot work due to illness or injury is not deductible for sole traders. This is treated as a personal expense because the benefit is personal income. The advantage is that any payouts from a personal income protection policy are generally tax-free.
Critical illness cover. Personal critical illness insurance is not a business expense.
Home insurance (personal proportion). If you have home insurance that covers your personal belongings as well as business equipment, only the business element is deductible. You cannot claim the whole premium if the policy covers personal items too.
Mixed Policies: Business and Personal
Some insurance policies cover both business and personal risks. For example, you might have a home insurance policy that includes a business equipment extension, or a motor insurance policy that covers both business and personal use.
In these cases, you need to identify the business proportion of the premium and claim only that amount. For motor insurance, this is usually based on the proportion of business miles. For home insurance with a business extension, you can usually identify the additional premium charged for the business element.
If the additional business premium is itemised on your policy schedule, claiming it is straightforward. If it is not, you may need to contact your insurer to ask for a breakdown.
Record Keeping
For each insurance policy you claim as a business expense, keep:
- A copy of the policy schedule showing what is covered
- The premium amount and payment dates
- Evidence of payment (bank statement or receipt)
- A note of the business proportion if the policy covers both business and personal risks
HMRC may ask to see your policy documents if they query your claim, so keep them accessible. With Accounted, I store your insurance records alongside all your other expenses, so everything is in one place when you need it.
For more on keeping organised records, see our guide on receipt management and automation.
How to Reduce Your Insurance Costs
While this guide is about claiming premiums as tax deductions, it is also worth mentioning that reducing your premiums saves you money directly. Here are a few tips:
Bundle policies. Many insurers offer combined business insurance packages that cover public liability, professional indemnity, contents, and employers' liability together. Bundled policies are often cheaper than buying each one separately.
Increase your excess. A higher voluntary excess reduces your premium. If you can afford to cover small claims out of pocket, a higher excess can produce significant savings.
Shop around annually. Insurance premiums often increase at renewal. Get quotes from multiple providers each year to make sure you are getting a competitive rate.
Review your cover levels. Make sure your cover is appropriate for your business size and risk level. Over-insuring costs money unnecessarily, while under-insuring leaves you exposed.
How Accounted Handles Insurance Expenses
When you pay an insurance premium and the transaction appears in your bank feed, I recognise it and categorise it as an insurance expense. If the policy covers both business and personal risks, I will ask you to confirm the business proportion so that only the deductible amount is included in your accounts.
I also keep track of when your policies are due for renewal, so you never accidentally let important cover lapse.
To see how Accounted keeps your expenses organised and your tax calculations accurate, visit our features page or sign up for a free trial. Check our pricing to find the right plan for your business.
Summary
Most business insurance premiums are fully deductible expenses for sole traders. Professional indemnity, public liability, employers' liability, business contents, business interruption, product liability, and cyber insurance are all claimable in full. Motor and property insurance can be claimed in the business proportion.
The main policies that are not deductible are personal insurances — life, health, income protection, and critical illness cover — taken out for personal rather than business purposes.
The tax savings from claiming insurance premiums might not seem dramatic on their own, but combined with all your other allowable expenses, they contribute to a meaningful reduction in your tax bill. For a full overview of everything you can claim, see our complete guide to sole trader tax deductions.
As always, if you have a question about whether a specific insurance policy qualifies as a business expense, just ask me. I am here to help you claim everything you are entitled to.
Useful Resources
Accounted categorises your expenses automatically using AI, with confidence scores on every transaction. See how expenses work →
Tax & Compliance Specialists
Our tax specialists have decades of combined experience in UK sole trader and small business taxation, MTD compliance, and HMRC submissions. All content is reviewed against current HMRC guidance before publication and updated quarterly to reflect legislative changes.
Ready to try Accounted?
Join UK sole traders who are simplifying their bookkeeping and tax.
Start your 14-day free trial