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 tenens, 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 rules of Cases I/II
Schedule D.
The benefits received under the policies are business receipts within Schedule D Cases I or II because they diminish allowable business expenses (see Donald Fisher (Ealing) Ltd v Spencer [1989] 63TC168). They are not within the exemption legislated in FA96 (ICTA88/S580A (6)) and nor are they within the earlier ESCA83, see BIM45560.
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 BIM42130).
This guidance applies to premiums for periods of account that
begin on or after 1 October 1996. Our earlier view was that
premiums on locum and fixed practice policies were not deductible
and the receipts were not taxable, in the same way as premiums on
permanent health insurance policies of the type covered in
BIM45560.
Cases affected by the change in practice should be dealt with
in accordance with the Press Release of 30 April 1996 reproduced in
BIM45570.
