Spring 2008 Newsletter Content Winter Of Discontent CGT Winners CGT Losers Shifty Business Anything To Declare? Long Arm Of The Law Irreplaceable You Earn As You Pay Ask Questions Later Capital Ideas ISA ISA ISA Referee! Go Green VAT Or No VAT? Taking The Register Close Encounters May Contain Nuts Going Concern Ancient History Business And Pleasure Do Your Duty Know Your Rights Time To Go? Passing The Buck

Irreplaceable You A "key man insurance policy" is sometimes taken out by a business to cover the risk of a crucial employee falling under a bus. Companies have had arguments with the taxman about the two obvious questions - are the premiums a valid business expense, and are the proceeds taxable if the policy pays out? The answer is "it depends". If the purpose of the policy is to benefit the company - to keep the business going through the difficult times while the key employee is replaced, or to make up for the dip in profits that will be suffered because of their loss - then the premiums should be deductible and the proceeds taxable. If the purpose is to protect the shareholders - for example, if they have guaranteed the company's borrowings, and the policy will pay off that debt - then it's likely that the insurance won't be treated as part of the business. It's worth thinking about it if you have one of these policies. Of course, you hope that your key man doesn't die - but if he does, the Revenue will take your deduction of the premiums as strong evidence that the proceeds will be taxable. If it's really not a trading matter, it should be treated as something outside the business from the outset. If you want to discuss the treatment of your insurance policies, we will be happy to help.