Life Insurance offered by employers is considered an employee incentive as it provides peace of mind that their families will have some financial assistance if they were to die. However, one problem with Life Insurance is that it gives rise to a taxable benefit-in-kind.
The tax-efficient alternative for this problem would be to look at paying for a Relevant Life Policy (RLP) instead. They are designed to pay a lump sum if the employee dies whilst employed during the length of the policy. They will also pay out if the employee is diagnosed with terminal illness whilst employed.
If LMN Ltd opted for a general life insurance policy for John, they would have to pay £800 in premiums in 2017/18 for the policy. The company would then be liable to class 1A NI of £110 but will receive a corporation tax relief of £173. John would also be liable to tax of £360.
Alternatively, If LMN Ltd paid out Relevant Life Policy for John instead of a general life insurance policy. The company will receive a corporation tax relief of £152 and won’t be charged the class 1A NI. Also, John won’t need to pay any tax.