Though working for yourself brings with it a plethora of benefits including freedom to set your own deadlines, work rates, and daily hours, there are also a number of challenges that you must overcome along the way.
One of the most prominent issues faced by the self-employed is figuring out what tax you have to pay; this issue is complicated by factors such as irregular income.But one issue that falls under the radar is sick pay. Now, on the surface it may not look like much to worry about but employees receive benefits from their employer if they are unable to work. So what happens when you are self employed? A self employed person receives no sick pay benefits.
Luckily for you, as a self-employed person, you can apply for income protection. But what is income protection and, if self-employed, do you pay tax on income protection? Get all the answers you need by continuing reading.
What Is Income Protection?
Income protection insurance, also known as “Executive Income Protection” for businesses, is a form of insurance that protects you in instances where you have been left unable to work due to illness or injury.
Executive income protection is available to be taken out by those that are self-employed, be that in the form of a Sole Trader, Partnership, or as the director of a Limited Company. You can also take out income protection if you’re not self-employed, as part of a wider business policy.
Typically, the payout of executive income protection insurance following a claim is up to 80% of your gross earnings, making it easier to stay on your feet in tough times. This includes dividends and P11D benefits with options to include extra cover for employer NICs and pension contributions.
The length of waiting time for your payout is dependent on the product; the payout terms are something that is usually discussed between both parties. The payments will continue to be received until you return to work as normal or else decide to retire within the term of your plan.
When self-employed, business income protection insurance covers a number of essential things. This includes living costs, mortgage payments or rent payments, other bills, and any outstanding debts repayments.
As is the case with other insurances, you pay a monthly premium in exchange for income protection.
If Self-Employed, Do You Pay Tax On Income Protection?
If you are self-employed and paying for income protection insurance, you usually do have to pay tax. This can then become a higher rate depending on if you are a sole trader or a business, as both the business and recipient need to pay taxes on the payment.
However, premiums for Executive Income Protection are viewed as an allowable business expense, with corporation tax relief available and no additional income tax or National Insurance to pay.
The benefit received by the employee is usually liable for the normal taxes.
Does Anything Affect Your Ability To Take Out Income Protection?
Like many types of insurance, income protection insurances may be affected by a number of factors. More specifically, the below factors may affect how much your monthly premium is:
• Your job. If you are self-employed in a role that is considered to be high risk, you should expect your monthly premiums to increase in cost. This is because the likelihood of you needing to take out the income protection at some point due to injury is higher.
• Your age. If you are younger, you are generally considered to be in better health and less susceptible to illness or life-changing injury. Due to this, you can expect lower monthly premiums. Contrasting this, if you are older you should expect your monthly premiums to be higher because of increased risk.
• Your lifestyle. Similar to many other types of life insurance, your lifestyle affects the monthly premium of your income protection insurance. Hobbies that are deemed dangerous or habits that pose a threat to your health, such as smoking, may hike up the costs of your insurance.
• Your waiting period. If you wait a substantial amount of time before requesting a pay-out, it’s likely that your monthly premiums will be cheaper. On the flipside to this, if you request a pay-out not long into your policy, you should expect monthly costs to rise in order to protect your insurer.
These are just a few of the factors that could affect how much you pay for your income protection. As you do not have to pay tax on your policy or any pay-outs, you could view your premium as being in lieu of a tax.
Find The Best Income Protection For Self-Employed People Today
If you’re self-employed and want to find out more about the best business income protection deals currently offered on the insurance market, look no further than WIS Business Protection. Whether you want to compare business income protection or relevant life cover, WIS Business Protection is the ideal platform to see all of your options quickly and easily.
Get started by using the WIS Business Protection website today or else by getting in touch with someone from our expert team for advice.