Insurance Premiums: Which Are Tax Deductible

Business Insurance Is Generally Allowable

Insurance is a cost of doing business, and HMRC recognises this by making most business insurance premiums tax-deductible. Whether you're insuring against professional negligence, public injury claims, or damage to your equipment, these premiums reduce your taxable profits.

The key test is the same as for all business expenses: the insurance must be for the purposes of your trade. Personal insurance policies are not deductible.

Fully Allowable Insurance Premiums

Professional Indemnity Insurance

If you provide professional advice or services, professional indemnity insurance (PI insurance) protects you against claims of negligence, errors, or omissions. For many professions — accountants, architects, financial advisers, solicitors — it's mandatory. Even where it's not compulsory, it's widely considered essential.

PI insurance premiums are fully deductible as a business expense.

Public Liability Insurance

Public liability insurance covers claims from members of the public who suffer injury or property damage as a result of your business activities. If a client trips over your equipment, or a passer-by is hurt by work you're carrying out, public liability insurance covers the claim.

Fully deductible, and strongly recommended for anyone who works on client premises or interacts with the public.

Employer's Liability Insurance

If you employ anyone — even one person, even part-time — you're legally required to have employer's liability insurance with at least £5 million of cover. The premium is fully deductible.

Business Premises Insurance

If you rent or own business premises, the building and contents insurance is deductible. This covers the physical structure, fixtures, and the contents you own.

If you work from home, the business proportion of your home insurance can be claimed as part of your working-from-home expenses (under the actual costs method).

Business Equipment Insurance

Insurance covering your business tools, technology, stock, and other assets is fully deductible. This includes:

• Tool insurance for tradespeople
• Equipment insurance for photographers, musicians, etc.
• Stock insurance for retailers
• Transit insurance for goods in delivery

Product Liability Insurance

If you manufacture or sell physical products, product liability insurance protects against claims arising from defective products. Fully deductible.

Cyber Insurance

Increasingly important for businesses that handle customer data or rely on technology. Cyber insurance covers costs related to data breaches, ransomware, and other cyber incidents. Fully deductible.

Business Interruption Insurance

This covers lost income if your business can't operate due to an insured event (fire, flood, etc.). The premiums are deductible as a business expense.

Commercial Vehicle Insurance

If you have a van, truck, or other commercial vehicle used for business, the insurance is deductible. If the vehicle is also used personally, claim the business proportion.

Key Person Insurance

If your business takes out a key person insurance policy — where the business pays the premiums and the business is the beneficiary — the premiums may be deductible. The policy must be to protect the business against financial loss from the death or incapacity of a key individual.

This area has some complexity. HMRC's guidance (BIM45525) provides specific conditions that must be met.

Partially Allowable Insurance

Motor Insurance (Mixed Use)

If you use your personal car for business (and claim actual costs rather than mileage), you can deduct the business proportion of your motor insurance. If 60% of your mileage is business, claim 60% of the premium.

Note: if you use the simplified mileage method, motor insurance is already covered by the mileage rate — don't claim it separately.

Home Insurance (Working from Home)

If you work from home using the actual costs method, a proportion of your home insurance is included in the home-use calculation. See our guides on simplified expenses and actual costs.

Not Allowable

Personal Life Insurance

Life insurance that pays out to your family on your death is a personal expense. Even if you argue that your family depends on your business income, the policy is personal — not for the purposes of your trade.

Private Medical Insurance (For Yourself)

If you're a sole trader and take out private health insurance for yourself, it's not deductible. It's treated as personal expenditure.

However, if you employ staff and provide private medical insurance as an employee benefit, the cost is an allowable business expense (though it's a taxable benefit for the employee).

Income Protection Insurance (Usually)

Income protection insurance that pays you a replacement income if you can't work due to illness or injury is generally treated as a personal expense for sole traders. Any payouts would be tax-free (because you paid the premiums from taxed income).

There are some limited circumstances where income protection premiums paid by a business can be deductible, but for most sole traders, this is a personal cost.

Critical Illness Cover

Like life insurance, critical illness cover is personal insurance and not deductible.

Timing of the Claim

Insurance premiums are claimed in the period they relate to:

• Annual premiums paid in advance: Claim in the tax year the cover relates to, not necessarily the year you pay (though for most sole traders on a cash basis, you claim when you pay)
• Monthly premiums: Claim each month's premium in the month it's paid
• Multi-year policies: Spread the cost over the years covered

If you're using the cash basis of accounting (as most sole traders do), you claim the premium in the year you pay it, regardless of when the cover period falls.

Record-Keeping

Keep copies of:

• Insurance policy documents
• Premium payment receipts or direct debit records
• Renewal notices
• Claims correspondence (relevant if you claim costs arising from incidents)

With Accounted, Penny automatically identifies insurance payments in your bank feed and categorises them correctly.

Common Mistakes

Forgetting to claim. If your insurance auto-renews by direct debit, it's easy to overlook as an expense. Check your bank statements.

Claiming personal insurance. Life insurance, personal health insurance, and critical illness cover are not business expenses.

Not splitting mixed-use policies. If your motor or home insurance covers both personal and business use, only claim the business proportion.

Make sure every business insurance premium is claimed. Start your free trial with Accounted and let Penny keep track of your insurance costs.