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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions: insurance: locum and fixed overheads

By contrast with permanent health insurance policies (see BIM45560), the premiums on certain sickness insurance policies are allowable deductions. These insurance policies indemnify the policyholder against business costs such as payments to a locum to temporarily carry out the policyholder’s professional activities, or other fixed overheads, in the event of the policyholder’s incapacity to carry on the business during a period of illness. Policies of this type are held mainly by medical professionals such as doctors and dentists who practise alone or in partnership.

The costs of employing a locum or of the fixed overheads of the practice are allowable under the ordinary trading income rules.

Insurance recoveries

The benefits received under the policies are trading receipts because they diminish allowable business expenses (see Donald Fisher (Ealing) Ltd v Spencer [1989] 63 TC 168). They are not within the exemption in S735 Income Tax (Trading and Other Income) Act 2005 (see BIM45560).

Personal purpose

If a policy includes insurance against the cost of personal expenses such as medical treatment and the premiums are paid partly for a personal purpose, apportionment may be necessary so as to allow only the proportion of the premium that relates to practice expenses cover (see BIM42115).