Executive Income Protection

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Executive Income Protection is a type of protection for limited companies where the business owns and pays into the account. If an employee becomes ill and is no longer able to work, the company may then pay out. Either through monthly payments or payments to meet other financial obligations, preventing the individual from having to rely on just state benefit. This type of protection is largely aimed at directors of limited companies.

The plans are set up in the limited companies name for the directors benefit and the company is required to pay premiums as necessary. However, premiums paid in are not treated as benefit on the P11D form.

Executive Income Protection has a whole host of benefits over other forms of income protection such as personal income protection. This type of protection includes:

  • Salary
  • Dividends
  • Dividends paid to a spouse or partner
  • Employer pension contributions
  • Employer national insurance contributions

If a payout is made, this will be in the form of a trading receipt to the business. Subsequently, when this is passed to the employee, it will be classed as a trading expense. Resulting in a tax situation of neutral nature. However, payments from the business to the employee will result in appropriate reductions of tax and national insurance as a result of the PAYE system. Executive income protection providers will allow up to 80% of gross annual income to be covered so that this can compensate for tax deductions.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.