Whilst there is recognition of the need to cover risks which may affect machinery, technological equipment and the premises, the one element of cover that, from our experience, seems to be commonly overlooked is that of protection for the business owners and their key members of staff. This is an area where we believe we can add value to our corporate clients.
Key Person Cover
What would happen if one of your key employees, for instance your top salesperson, fell ill or sadly passed away? Would you have sufficient cashflow to keep all creditors paid and cover the cost of hiring and training a replacement? Even if you did, was that cash previously earmarked for expansion or research and development? This is where key person cover can help.
Designed to pay out a lump sum to the business in the event that a key person dies or is diagnosed with a critical illness, it can provide some breathing space by helping to protect profits, debts, a business overdraft, or even to cover salaries and the daily running costs. The business would take out life cover on the life of the individual and as the premiums would be paid by the company, this is normally an allowable deduction for Corporation Tax (CT) purposes, potentially saving tax within the business.
Share & Partnership Protection
Share and Partnership Protection is aimed specifically at the owners of the business. It is typical for the business owner’s / partner’s stake to be passed to their family in the event of death (instructed within their will). If they are a majority stakeholder, this might cause concern for the other owners of the firm, who may feel that they will be overlooked or may even be forced to sell the business. Similarly, this may cause concern for the surviving spouse / civil partner, who may not want to be responsible for the business moving forward. Protection can ensure that if a business owner passes away, the business has sufficient capital to buy back the shares from their beneficiaries, allowing the right people to continue to own and run the business.
By insuring the lives of the shareholders/partners, a business can make sure there is sufficient capital to buy back the shares or even pay off any outstanding director loans which may exist. In some instances, critical illness can be added too. Like key person cover, this is normally an allowable deduction for CT purposes.
Relevant Life Cover
From our experience, many are unaware that life cover can also be set up through a limited company for the owner(s) themselves, with this life cover written into trust for the benefit of their intended beneficiaries. This can be a very cost-effective way to set up life cover as, rather than using net income (which would be after income tax and national insurance), they can use the gross profits from the business. As with other protection benefits available, the premiums are also normally allowable deductions for Corporation Tax (CT) purposes.
It is worth noting that care needs to be taken if the premiums do qualify for tax relief, as the sum assured following a successful claim will be taxable. Tax advice should be sought before proceeding with such.
Should the above be of interest to you, or should you like to review your existing business protection cover, please do not hesitate to get in contact by either calling us on 01604 621 421 or filling out our online contact form.
MHA Caves Wealth Ltd is authorised and regulated by the Financial Conduct Authority (FCA), Financial Services Register number 143715.
This communication is for general information only and is not intended to be individual product/investment advice, tax or legal advice. The views expressed in this article are those of MHA Caves Wealth and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. You are recommended to seek professional regulated advice before taking any action.