IR6                                                       29 November 1994

 DIRECTORS AND EMPLOYEES:  RELIEF FOR LIABILITY INSURANCE
                 AND UNINSURED LIABILITIES

The Chancellor proposes in his Budget to:

    remove  the existing charge to tax on employees  when employers  pay 
    for employees' liability insurance  or meet work-related uninsured 
    liabilities; 
    
    and

    give relief for employees' own  expenditure on liability insurance 
    and work-related uninsured liabilities, including expenditure up to  
    six  years after the year in which the employment ends.

The   Chancellor's  intention  is  to  remove  a  possible obstacle  
to  the  provision  of  liability  insurance  by employers for their 
employees and to payments by employers for  employees' work-related 
liabilities which could  have been  insured  against.  The proposal 
would put  employees who  meet their own liability insurance costs or
uninsured liabilities  on the same footing as employees whose  costs 
are borne by their employer.

The measure is to take effect from 6 April 1995.

DETAILS

Current tax treatment

1.  Under  current income tax law, payments by employees or directors 
for liability insurance, such as  directors' and officers' liability 
insurance  or  professional indemnity insurance, do not qualify for 
tax relief. This is  because  the expenditure  is  not  considered 
to  be incurred  wholly, exclusively  and  necessarily  in   the 
performance of the duties of the employment.
              
2.  Payments by employers to provide liability insurance which protects 
employees or directors are taxable as a benefit  in kind for 
directors and those employees earning a rate of pounds 8,500 a year or 
more.

3.  Payments  by  employees or directors  for  uninsured personal  
liabilities  arising from  their  activities  at work,  such as legal
costs in defending an action  brought against them, do not qualify 
for tax relief. Payments  by employers  to  meet  employees'  or  
directors uninsured personal liabilities are taxable.

Consultation

4.  On 12 May  1994 the Inland Revenue published a consultative paper  
entitled  'Schedule  E: Liability Insurance And Payments To Meet 
Uninsured Liabilities'.

5.  There  were  92 responses to the consultative  paper from  
representative bodies, financial  institutions,  the insurance 
industry and others.  Most favoured an exemption from  a benefit in 
kind tax charge for liability insurance premiums  paid by employers. 
Responses generally favoured an  exemption covering all legally 
insurable risks.   Most responses  also favoured relief for payments 
by  employers to  meet employees' uninsured liabilities to match any 
new relief for insured liabilities.

6.  Most of the responses also said that there should be tax relief  for
liability  insurance  premiums  paid  by directors  and employees, 
and were also in favour  of  tax relief  for expenditure by 
individuals to meet  their  own uninsured liabilities.

The new relief

7.  The Chancellor proposes to change the law to:

    exempt from any benefit in kind charge directors and employees whose 
    liability insurance premiums are paid by their employer;

    exempt from income tax payments by employers  to meet employees' 
    uninsured liabilities (such  as legal  costs) arising from their 
    work, but  only where  the  liabilities could have been insured 
    against:   in  other words, liabilities  arising from, for example, 
    criminal convictions will not attract relief;

    give  employees tax relief for expenses incurred to  provide their 
    own liability insurance and to meet  their own uninsured liabilities,
    in  line with the exemption for employer-funded insurance and 
    uninsured liabilities.

8.  Relief  will  also be available to former  employees who, after  the
employment has ceased, pay for  liability insurance or meet uninsured
liabilities relating to  their work.   The  relief will be given 
against the  income  and gains  in the year the expenditure is 
incurred, for up  to six years after the year in which the employment
ceased.

9.  The  new relief will apply from the tax year 1995-96 onwards.  It 
will also have a helpful deregulatory  effect by  relieving employers
of the need to provide the Revenue with details of liability 
insurance provided for employees or  payments for uninsured 
liabilities.  Employees will be able to claim the new relief for 
their own expenditure  on liability insurance and uninsured 
liabilities on or  after 6 April 1995.

National Insurance Contributions

10. The  Department of Social Security intend  to  bring forward  
Regulations to parallel the  new  exemptions  for employer-funded   
liability   insurance   and    uninsured liabilities for National 
Insurance Contributions purposes.

Cost
      
11. It is estimated that the cost of this proposal will be about 
pounds 40 million a year.