Cyber insurance
Last checked 26 October 2026 · HMRC source
Cyber insurance premiums are an allowable business cost where the policy is taken out for the purposes of the business. GOV.UK's self-employed expenses guidance says you can claim for any insurance policy for your business, and HMRC's Business Income Manual applies one test to sole traders and companies: what is insured, and whether the insurance was taken out for the purposes of the trade.
Conditions
- For a sole trader, GOV.UK's self-employed expenses guidance says: 'You can claim for any insurance policy for your business'. HMRC's Business Income Manual (BIM45500) states that whether insurance premiums are deductible from trading profits depends on what is insured and whether the insurance has been taken out for the purposes of the trade. Neither source names cyber insurance; a cyber policy is judged by that general test.
- A cyber policy may include first-party cover, which pays the business's own costs after an incident (for example investigation, data recovery or lost income from business interruption), and third-party cover, which meets claims from others who suffer loss because of a breach at the business. What a particular policy covers is set by its wording.
- Fines are a separate matter from the premium. GOV.UK says you cannot claim for fines for breaking the law, and HMRC's Business Income Manual (BIM42515) says that a penalty imposed by a regulatory body for breach of regulations is not an allowable expense. A penalty for breaching data protection law is not deductible on that basis.
- For a limited company the same manual test applies, and the wholly and exclusively rule is section 54 CTA 2009.
- Employees cannot claim cyber insurance premiums. A cyber policy for the business covers the business's own losses and liabilities, and an employee can deduct an expense only where they are obliged to incur and pay it as holder of the employment (section 336 ITEPA 2003). The separate employee relief for insurance (section 346 ITEPA 2003) is for a premium under a qualifying insurance contract, to the extent it relates to indemnifying the employee against a liability related to the employment, or to cover for certain costs and expenses connected with claims, proceedings or investigations relating to the employment.
Common mistakes
- Assuming a combined business insurance policy already includes cyber cover — check the policy wording to see what it actually covers.
- Overlooking the third-party liability angle — if a breach exposes customer data, the business may face claims from those customers even if its own direct costs are manageable.
- Treating an insurance payout as automatically tax-free. HMRC's Business Income Manual (BIM45500) says that in most situations, if the insurance premiums are allowable deductions from trading profits, the receipts from the policy are taxable as trading income.
- Claiming a regulatory fine as a business expense — HMRC says a penalty imposed by a regulatory body for breach of regulations is not allowable (BIM42515).
What to keep
- Policy schedule showing the insured, cover limits (first-party and third-party), period of cover, and premium.
- Premium invoices or payment records.
Real-world example
A limited company provides cloud-based software to business clients and holds customer data on its servers. It takes out cyber insurance with £1 million third-party liability cover and first-party cover for breach response costs and business interruption, at a combined premium of £1,800 per year. The policy is taken out for the purposes of its trade, so the premium is allowable.
Frequently asked
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Every figure, rule and status on this page traces to these GOV.UK and legislation.gov.uk pages, all read on 26 October 2026.
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