In 2019 it showed that there were 5.85 million small/medium businesses in the UK, with small/medium business numbers increasing by just over 5% in the year. Worryingly only 1 in 5 of those businesses are reported to have insurance in place to protect their key asset – its people.
Most small business’s most important asset will be its people and the skills that they hold. With many of these small businesses also being family businesses where the household relies on its income the impact of the loss of a key person or them being unable to work due to accident or illness are wide ranging.
These insurances are often classed as a business expense so can be removed from company profit before corporation tax is calculated.
Key for 2020
One of the most popular types of protection at the moment is business loan protection, in 2020 the latest numbers show that £65 billion has been loaned to businesses under the bounce back and coronavirus business interruption loan schemes. As the majority of these policies have been taken out directly with the lender there have been very few conversations around protecting these loans. The cost of protecting these loans is coming up as a small investment (e.g. female age 45 – non smoker, £30,000 cover over 5 years = £5.57 per month).
Directors Loan Accounts (DLAs)
For those running DLAs where an investment has been made into the business by directors what is the impact of the death of that director? The answer is fairly simple where the DLA is in credit, DLAs are repayable on demand by the deceased’s estate, this can cause an issue where the company does not hold the liquid cash to repay a director’s investment. These are not counted for business property relief of death and will count towards the value of the deceased’s account for inheritance tax.
What about if the company is running a negative DLA, (this is where the director owes money to the company) in this instance the outstanding loan is taxable in the hands of the company if it is not repaid within 9 months of the accounting year end. When the loan is repaid the tax can be reclaimed, how likely is this to happen?