UK Insurance Premium Tax to rise to 12%

12 May 2017

The UK Government announced that with effect from 1 June 2017 the standard rate of UK Insurance Premium Tax (IPT) will increase from 10% to 12%. A higher rate of IPT (20%) applies to travel insurance, and certain insurance sold alongside motor vehicles and some household electrical goods, this rate was first introduced in 1997 and set at 17.5% to block VAT avoidance schemes. This higher rate of IPT remains unchanged at 20%.

Premiums are usually quoted exclusive of IPT. However, the total amount payable by the insured under taxable insurance policies is inclusive of IPT and the insurer is responsible for accounting for IPT to HM Revenue & Customs (HMRC). Implementation of the effective date for the increase from 10% to 12% on contracts which incepted prior to 1 June 2017, will depend on the tax accounting procedures adopted by the insurer.

When is IPT normally due? 

The tax point is the date when IPT must be applied to a taxable premium. The basic tax point is when a premium or instalment is received by the insurer, broker or any other agent of the insurer – this is often referred to as the cash receipt method. However, if an insurer opts to use the special accounting scheme the IPT tax point is created when a premium is written in the insurer’s accounts. This can either be the date of physical writing or the date the premium is shown as due.

The insurer cannot select its tax system on a case by case basis; the method used will be the same for their entire book. Change can only be made by application to HMRC with appropriate rational.

The following notes are for general guidance only as to how the changes will be implemented:

Policies incepting or renewing on or after 1 June 2017

Under both the cash receipt method and the “special accounting” scheme, the new standard rate of IPT of 12% will apply to all taxable premiums for policies incepting or renewing on or after 1 June 2017.

Concessionary period for policies that incepted prior to 1 June 2017

There are transitional arrangements that allow certain premiums to continue to be processed at the old rate (10%) under a 12 month concessionary or transitional period ending on 1 June 2018.

This relates to insurers using the special accounting scheme and where the premiums relate to policies incepting prior to 1 June 2017 and are received and processed by the 1 June 2018. Premiums with insurers using the ‘cash receipt’ method will be charged at the higher rate for monies received by them from 1 June 2017 onwards, irrespective of policy inception.

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For further information, please contact Laurence Maddock, Project Manager on +44 20 7528 4402 or email laurence_maddock@jltgroup.com

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