Government Rate Increase to Insurance Premium Tax
The Current Insurance Premium Tax Changes
In November 2015, we saw an increase of 3.5% to the standard rate of Insurance Premium Tax (IPT), increasing the rate from 6% to 9.5%, then in October 2016 IPT increased 10%.
HM Revenue and Customs (HMRC) have announced a further increase of the standard rate from 10% to 12% with effect from the 1st June 2017. This instruction has been cascaded throughout the UK Insurance Industry.
Standard Rate IPT:
The rate increase is applicable to the standard rate of IPT only.
The higher rate of IPT which is charged for travel insurance, mechanical/electrical appliance insurance and some vehicle insurance, remains unchanged at 20%.
There are a number of exemptions from IPT, including:
- most long-term insurance
- insurance for commercial ships and aircraft
- insurance for commercial goods in international transit
- premiums for risks located outside the UK - these may be liable to similar taxes imposed by other countries
Mid Term Adjustments:
HMRC have not allowed a transition period. They have allowed a backstop date of 1st June 2018 until which transactions effective prior to 1st June 2017 can be processed at the old IPT rate of 9.5%.
- All additional premium MTAs on policies that incepted or renewed before 1st June 2017: 10% IPT.
- All additional premium MTAs on policies that incepted or renewed on or after 1st June 2017: 12% IPT.
- Return premium should be at the IPT rate paid originally by the customer, which is often the IPT rate at inception or renewal.
For the majority of our clients the standard rate of IPT will apply. The majority of insurers appear to be taking the same approach when implementing the rate increase on their systems. The rate applied to your renewal or any subsequent amendments to cover, will be clearly shown on your policy documentation. However, if you have any queries, please do not hesitate to speak to a member of the team here at Pavey Group.
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