Are you an owner of a SME? Do you want to save cash for your company whilst you provide your employees the life insurance cover they deserve? As you grow your business and hire more employees, as a responsible business owner, you may wish to consider Relevant Life Insurance (RLI).
RLI is a unique insurance product which is ideal for any owner of an SME to consider for multiple reasons. With an RLI you can effectively insure and protect all the employees against an untimely death and secure some financial respite for any of their surviving dependents. It effectively provides protection for both, the owner (as a director or an employee of the business) and for its employees. There are also multiple tax benefits in RLI in comparison to personal life insurance, which are enumerated below.
SMEs are the lifeblood of the UK economy, employing a staggering 44% of the country’s labour and contributing a whopping 50% of the total revenue generated by UK businesses .
However, the COVID 19 pandemic posed a very real threat to continuity of all businesses and SMEs were especially hit hard. As such, the relevance and importance of RLI has never been greater amidst this uncertainty, especially on the larger, national scale.
In the past, whilst larger firms with deeper pockets had the option of group life insurance, SMEs with limited reserves and fewer employees, did not always have access to the same cover and protection they were in need of. However, in this day and age, with RLI – even a single director can obtain RLI with the associated tax advantages, making it a very SME friendly protection instrument.
Tax advantages = How you can save your company money
Relevant life plans are a very tax efficient protection solution and some of those benefits are enumerated below:
- The premiums are corporation tax deductible
Premiums paid by the employer may be treated as an allowable expense for the company when calculating tax liabilities (employer payments must qualify under the ‘wholly and exclusively’ rules). - There is no P11D Benefit-In-Kind tax to pay
McKinsey UK COVID-19 Survey of 600 small and medium-size enterprises (with 250 employees or less) across England, Northern Ireland, Scotland, and Wales conducted in the week beginning May 11, 2020. The sample is representative of 16 sectors (accommodation and food services; administrative and support services; agriculture; arts, entertainment, and recreation; business consulting; construction; education; finance and insurance; health; information and communication; logistics; manufacturing; property; retail; scientific; and wholesale).The premium is not normally treated as a benefit-in-kind; therefore, the employee doesn’t have to pay Income Tax on it. Also, unlike the lump sums paid from a registered group scheme, the benefits paid from a relevant life plan don’t form part of an employee’s lifetime allowance for pension benefits. - Neither the employee nor the employer will pay National Insurance on the premiums
- Premiums do not count as contributions towards their pension annual allowance
The potential savings as a Company Director are illustrated by the case study below:
Scenario 1 – Sam takes out a personal life insurance policy, paid for out of her net salary.
| Cost to Sam | |
| Monthly Premium | £100 |
| Employee National Insurance | £3.45 |
| Higher Rate income Tax @ 40% | £68.96 |
| Gross Earnings Required | £172.41 |
Scenario 2 – Sam’s company takes out and pays for a Relevant Life Insurance policy on her behalf.
| The cost to the Company | |
| Monthly Premium | £100 |
| Employee National Insurance | n/a |
| Less Corporation Tax Relief @ 20% | £20 |
| Total Adjusted Cost | £80 |
As you can see this provides Sam and the company with a combined saving of £92.41 per month!
Is RLI right for your company?
Whilst this policy has numerous tax benefits, there are some limitations and requirements for eligibility for a RLI. The primary one being the nature of the legal entity must either be a limited company or a limited liability partnership and it is not typically available to sole traders or partners in a partnership.
A RLI also does not have any surrender value unlike in life insurance policies and it only in force as long as the employee’s company maintains the premiums and none of the conditions of the cover are breached. If the company chooses to stop paying the premiums, then the cover simply stops and there is no surrender value. The policy must also pay out before an employee reaches 75 years of age and the primary purpose of the plan must not be seen to be tax avoidance on the company’s behalf. A RLI will also only pay out a lump sum to a employee’s dependents in the event of their death and is strictly not a critical illness or income protection policy.
But before you decide whether RLI is right for you and or your company, speak to us!
We will help you find the right cover, and also advise you on how to make best use of all the tax benefits it offers. As your protection specialists, let us use all our comprehensive knowledge and expertise on both insurance and tax matters and and give you advise to secure your interests and your employees’ as well.
