Is Business Insurance Tax-Deductible in the UK? 2025 Guide for Sole Traders & Limited Companies

Here’s the short answer most people miss: yes, most UK business insurance premiums reduce your taxable profit, but not all of them. Get the rules wrong and you either overpay tax or invite an HMRC query. I’ll show you what’s allowed, what’s not, how to claim it cleanly, and the traps that catch business owners every year.

• TL;DR: Most trade policies (public liability, professional indemnity, employers’ liability, cyber, tools, trade credit, business contents/buildings) are deductible if they’re “wholly and exclusively” for business.
• Mixed-use policies (cars, home office) must be apportioned between business and personal use.
• Personal cover (private medical for sole traders, income protection for owners) usually isn’t deductible. Company-paid medical cover is deductible for the company but is a taxable benefit for the employee.
• Special cases (key person, relevant life, D&O) have rules-deductibility depends on purpose and who benefits.
• Claim on your Self Assessment (sole traders) or through your company accounts/CT600 (companies). Keep invoices, policy docs, and your apportionment working.

What you can deduct (and what you can’t) in the UK, 2025

The rule HMRC cares about is simple to say, tricky to apply: expenses must be “wholly and exclusively” for the trade (ITTOIA 2005 s34 for individuals, CTA 2009 s54 for companies). HMRC’s Business Income Manual (BIM) sections on insurance, and the employment manuals for benefits-in-kind, set out how they see this in practice. If a premium protects the business or staff while doing work, it tends to be allowable. If it protects you personally, or relates to capital/shareholding or private life, it’s usually not.

Here’s the quick landscape. I’ve marked what’s usually deductible for a sole trader vs a limited company, plus any benefit-in-kind (BIK) impact. Use this table as a sense-check, then read the notes below for the edge cases.

A quick tax effect sense-check. A deductible £1,200 premium reduces profits by £1,200. A company at the 25% main rate saves about £300 in Corporation Tax. A company on the 19% small profits rate saves about £228. A sole trader’s saving depends on their income tax band and Class 4 NIC, but the logic is the same-lower profit, lower tax/NIC.

Note on premiums, VAT and IPT: Most UK insurance is VAT-exempt but subject to Insurance Premium Tax (IPT). The standard IPT rate is 12%; some policies (like travel) carry a higher IPT. You can’t reclaim IPT, but it’s part of the deductible cost if the policy itself is allowable.

If you’re scanning for the core SEO answer: is business insurance tax deductible UK? Broadly yes, provided it’s for the business and not your private life, and you apportion any mixed use.

How to claim on your return (sole traders and companies)

Claiming is simple when you keep the paperwork tidy. The nuance is in apportioning mixed-use policies, handling benefits-in-kind, and timing the claim if you use cash basis vs accruals.

Sole traders and partnerships

• Where to claim: Include premiums under your Self Assessment self-employment pages as an allowable business expense. Use the category that fits (e.g., “Insurance” or “Other allowable business expenses”).
• Cash basis vs accruals: On cash basis, deduct when you pay the premium. On accruals, match the cost to the period of cover (time-apportion if a 15‑month policy spans two tax years).
• Mixed-use policies: Apportion clearly. For vehicle insurance, use business miles / total miles for the year. For home office contents/buildings, use your typical business proportion (rooms, time, or meters).
• Using simplified expenses (mileage): If you claim HMRC’s mileage rate for cars/vans, you cannot also claim the vehicle’s insurance separately. Pick one method per vehicle.
• Evidence: Keep the policy schedule, invoice, bank proof, and your apportionment working (spreadsheet or note).

Limited companies

• Where it lands: Post premiums to “Insurance” in your profit and loss. They reduce accounting profit and flow through to your CT600 calculation.
• Benefits-in-kind (BIK): Company-paid personal cover (e.g., private medical) creates a BIK for the employee/director and Class 1A NIC for the company. Report on P11D or through payrolling benefits. Medical cover is usually still deductible for the company.
• Relevant Life Policies (RLP): Often deductible for the company and, if the policy meets HMRC rules, not a BIK for the employee. Make sure the policy is set up under trust and meets the qualifying criteria.
• Key person insurance: Deductible only when it protects trading income. If the purpose is capital (loan protection, share purchase), premiums are not deductible. Document the purpose when you take the policy out.
• Cars and vans: Company car private use triggers BIK; the insurance is a business cost, but the employee is taxed on the private-use benefit of the car (not the insurance itself). For vans with insignificant private use, no BIK arises.
• Timing: Use accruals-match cost to coverage period. Prepayments at year-end should be carried forward.

VAT and IPT handling

• VAT: Insurance is VAT-exempt. There’s no input VAT to reclaim on premiums.
• IPT: IPT is part of the expense. You can’t reclaim it, but if the premium is allowable, IPT is too.

Apportionment heuristics you can defend

• Vehicle insurance: Business use % = business miles / total miles (use odometer photos at year-end).
• Home office buildings/contents: Rooms method (1 business room out of 5 rooms = 20%) adjusted for time use (e.g., 8 hours/day, 5 days/week ≈ 24%). Multiply: 20% × 24% ≈ 4.8% of the annual premium.
• Shared devices/tools: If kit is used 70% for client work and 30% personally, apply the same split to any standalone insurance on that kit.

Record-keeping checklist

• Policy schedule and invoice (with period of cover, business name, and cover descriptions).
• Proof of payment (bank/credit statement).
• Apportionment working (mileage log, room/time calculation).
• Board note or email describing policy purpose for special cases (key person, D&O, RLP).
• Year-end prepayment/accrual entry if on accruals.

Retention periods (UK)

• Sole traders: Keep records for at least 5 years after the 31 January submission deadline for the relevant tax year.
• Companies: Keep records for 6 years from the end of the last company financial year they relate to.

Why some premiums are tricky

• Medical insurance: Employers can deduct, but it’s a personal benefit for the employee. HMRC Employment Income Manual (EIM) explains the BIK treatment.
• Key person: HMRC’s longstanding practice looks at purpose. Profit-protection tends to be allowable; capital-related (loans/shares) isn’t.
• Relevant Life: Designed to be deductible for the employer and not a BIK for the employee, if structured correctly. Check the policy meets the statutory criteria.
• Income protection for owners: Usually seen as replacing personal income, so not allowable.

Quick tax saving benchmark (companies)

The exact Corporation Tax you pay in 2025 depends on profit bands, with a 19% small profits rate, 25% main rate, and marginal relief in between. HMRC’s CT pages set out the thresholds and marginal formula.

Real‑world examples, mini‑FAQ, and next steps

Examples you can copy

• Freelance designer (sole trader): Pays £420 for PI, £180 for public liability, and a £400 home insurance top-up that includes business contents. Uses a spare room 8 hours a day, 5 days a week (≈24% time) out of 4 rooms (25% rooms). Allowable proportion on the £400 is ≈6% (0.24 × 0.25), so £24. Deduct: £420 + £180 + £24 = £624.
• Ltd company with three staff: Buys £2,400 private medical insurance. The company deducts £2,400; each employee has a BIK reported via P11D/payrolling. The company pays Class 1A NIC on the BIK. Still deductible for CT.
• Courier sole trader: Van insurance £1,100. Business miles 18,000; total miles 24,000. Business use 75%. Allowable: £825. If they instead used HMRC mileage rates, they wouldn’t claim the insurance separately.
• Key person cover for a bank loan: Company takes £1,500 “key person” policy required by the lender to secure a loan. Purpose is capital (loan protection), so premiums aren’t deductible.
• Relevant Life policy for a director: £900 premium structured as an RLP in trust. Commonly deductible with no BIK, assuming it meets RLP rules. Keep the policy deed and broker letter on file.

Common mistakes to avoid

• Double-claiming vehicle costs by using mileage rates and also claiming insurance-pick one method.
• Not apportioning home and vehicle policies-HMRC expects a reasonable, documented basis.
• Claiming personal medical insurance as a sole trader-it’s not allowable.
• Assuming all “key man” premiums are deductible-purpose matters; document it.
• Forgetting IPT is included in the deductible cost (where the policy is allowable) but can’t be reclaimed.

Mini‑FAQ

• Is business insurance always deductible? No. It must be for the trade, not private life, and some policies have special rules (medical, key person, life).
• What proof does HMRC want? Policy docs, invoices, proof of payment, and your apportionment method. For special policies (key person, RLP), keep a note of purpose and eligibility.
• Where do I put it on Self Assessment? In your self‑employment section under allowable expenses-often “Insurance” or “Other allowable expenses.” Don’t stress the exact box name; accuracy of the amount and basis is the key.
• Where does it go for a limited company? In your accounts under overheads (Insurance). It feeds into your CT600 automatically via accounting profits.
• Can I backdate a missed claim? You can amend a return within the amendment window (typically 12 months from the filing deadline). Outside that, you may claim overpayment relief subject to HMRC time limits (often 4 years).
• Do I need to split premiums that straddle year-end? Yes, if you use accruals. Time‑apportion the prepayment into next year. Cash-basis traders claim when paid.
• Is landlord insurance deductible? Yes, but under property business rules (HMRC PIM). That’s separate from trade/business rules covered here.
• Does D&O create a benefit for directors? Normally no. It protects the company/board in their duties; it’s usually a deductible management expense without a BIK.

Decision mini‑tree

• Does the policy protect the business or its income? If yes → likely allowable.
• Is there any private benefit? If yes → apportion or exclude.
• Is it personal medical or income protection for an owner? If yes → likely not allowable (medical may be deductible for companies but creates a BIK).
• Is the purpose capital (loans/shares) rather than profit protection? If yes → not allowable.

Practical next steps

1. List every policy you pay-name, provider, period, amount, what it covers.
2. For each, mark: trade-only, mixed, or personal. For mixed, draft an apportionment method you’d be happy to defend.
3. Post the deductible share into your bookkeeping under Insurance (or the relevant expense line). Set a year‑end prepayment if needed.
4. For company medical/RLP/key person/D&O, file the right paperwork (P11D/payroll of benefits, trust deed, purpose memo).
5. At tax time, copy the totals into your SA pages (sole traders) or into your final accounts/CT600 (companies). Keep the workings for at least 5-6 years.

Credibility markers (so you know you’re on the right page): HMRC’s stance lives in the Business Income Manual (insurance sections), Employment Income Manual (benefits), and general guidance “Expenses if you’re self‑employed.” The legal backbone is ITTOIA 2005 s34 and CTA 2009 s54 on “wholly and exclusively.” Corporation Tax rates and marginal relief are set out in HMRC’s Corporation Tax guidance for 2025.

One final, very human tip: When you buy a policy, write a one‑line purpose note and attach it to the invoice. Six months later, that line saves you twenty minutes of head‑scratching-and if HMRC asks, you have your answer ready.