Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Employment Income Manual

Deductions: directors’ and officers’ liabilities: qualifying contracts of insurance

Section 349 ITEPA 2003

The basic characteristic of a qualifying contract of insurance is that it provides cover:

  • to one or more employees against qualifying liabilities or costs arising from claims that they are subject to qualifying liabilities, or
  • to an employer against loss arising from meeting any qualifying liability of an employee.

Excluded contracts

A contract of insurance is excluded from qualifying if it:

  • covers any risks other than those set out in EIM30509, or
  • is connected with any other contract (except for a contract of employment), or
  • provides the policy holder with anything (to which a significant part of the premium is attributable) other than the cover itself and the right to renew that cover, or
  • gives cover for more than two years (except by virtue of renewals), or
  • includes a provision requiring the insured to renew it.

Note that Section 346 ITEPA 2003 (see EIM30509) has been amended with effect from 6 April 2017 to include additional liabilities and expenses for which a deduction is available.

The effect of the first exclusion is to exclude from relief premiums for mixed policies; that is, policies that cover both qualifying and other liabilities. If such policies were not excluded it would be necessary to apportion premiums between cover that was qualifying and other cover. Such apportionment could be very complex.

The purpose of the exclusions is also to keep the operation of the relief relatively simple by excluding policies that go significantly beyond the provisions of annual cover against qualifying liabilities and costs and expenses associated with them.

See EIM30517 for more detail about the “connected policy” exclusion.