Employee liabilities and indemnity insurance

Produced by Tolley in association with

Employment Tax

Guidance

Introduction

Employers may meet the liabilities of their employees when they arise as a consequence of their employment duties, particularly those involving legal proceedings. To cover these liabilities, an employer will often take out an insurance policy.

Employees’ liabilities

Legal proceedings can be instigated against employees or directors either by other employees or by third parties. Often, the legal costs and any resulting liabilities will be met by an employer. An employer may choose to purchase insurance to meet all such costs.

If an employer meets the liabilities of an employee or purchases insurance on their behalf, then, typically, a tax charge will arise under ITEPA 2003, s 62 (see the Contractual and pecuniary liabilities guidance note).

However, in some circumstances, there may not be a charge to tax.

Relief for the costs of liabilities and insurance costs

ITEPA 2003, ss 346–347 provide tax relief for the costs of liabilities

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Paul Tew

Writer and advisor at Paywatch

Paul Tew is a freelance adviser, primarily in the areas of pay, personal taxation and remuneration planning. A frequent contributor to technical journals on pay and benefits issues, having written for the "In Business" section of the Times. Paul continues to supply articles for various recognised professional publications including Pay and Benefits magazine, Taxation magazine and Company's Secretary's Review. Paul also has had several loose leaf and bound books published on a variety of subject matter including PAYE, NIC, Sickness and Maternity Pay. Paul has written and presented training courses as well as headed up payroll and employment help desks and acted as an assessor for recognised Payroll/HR qualifications. Paul previously worked in the healthcare and oil sectors managing Pay and benefit services, so has many years of experience in dealing with PAYE and employment compliance issues across a broad range of industries and organisations.

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