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HMRC internal manual

Business Income Manual

Specific deductions: insurance: own health policies and own insurance funds

Premiums paid by a sole trader or partner to provide life, accident or sickness insurance cover for him/herself or a partner are not allowable deductions in computing trading profits. Such insurance policies are often known as permanent health insurance policies.

Similarly, the benefits payable under such policies are not trading income.

The benefits are generally tax-free, see S735 Income Tax (Trading and Other Income) Act 2005, IPTM6000 onwards and information on the HMRC website (

Own insurance funds

Sums set aside by traders out of their profits to form their own insurance funds should be treated as reserves and not as insurance premiums. They are also not allowable deductions in computing trading profits if they are to provide for payments to the trader or a partner in the event of their sickness, injury or death. Such payments are appropriations out of the profits of the sole trader or partnership after they have been earned, and are not expenditure incurred in earning the profits.