Insurance Premium Tax
Insurance Premium Tax (IPT) is a tax imposed by HM Government on insurance contracts but IPT does not apply to risks that are situated in the Channel Islands or the Isle of Man.
History of IPT
IPT was introduced for insurance contracts in 1994.
- 1st January 1994 - 2.5%
- 1st April 1997 - 4%
- 1st April 1999 - 5%
- 4th January 2011 - 6%
- 1st November 2015 - 9.5%
- 1st October 2016 - 10%
- 1st June 2017 - 12% (announced by the chancellor in his autumn statement).
A higher rate of 20% IPT applies to selected goods and services e.g. travel insurance.
All contracts of insurance are liable for IPT unless they are specifically exempted e.g. reinsurance.
The Transitional Period
Under the Special Accounting Scheme the tax point for IPT is the date insurers write the premium in their records. This would mean that in normal circumstances, all premiums written in insurers systems on or after 1st October 2016 would be subject to the new rate of IPT.
Ansvar operates the Special Accounting Scheme that has a four month concessionary period starting from the change in the rate of IPT e.g. 1st October 2016. For contracts incepted or renewed before 1st October 2016, the current rate of IPT would apply provided the premiums are processed by Ansvar by 31st January 2017.
The transitional period allows insurers to write premiums for policies that have incepted or renewed prior to 1st October 2016 at the old rate provided it is processed in their systems by 31st January 2017. This assists in circumstances where insurance contracts sold by brokers correctly at the old rate but have not been notified to the insurer until after the date of change of IPT and does not create an additional tax liability for either insurer or the customer.
IMPORTANT: Brokers must notify Ansvar of new business, renewals, scheme bordereaux and mid-term adjustments (MTAs) well before 31st January 2017 to enable us to process premiums in good time if the old rate of IPT applies. Late notification may result in Ansvar not being able to process the premiums before 31st January 2017, and if so the broker will be responsible to pay the shortfall of IPT in such circumstances.
For the proposed increase in IPT to 12%, the next transitional period would be 1st June 2017 to 30th September 2017.
The rate of IPT paid is based on the effective date of the MTA and the date processed by Ansvar.
- MTA’s effective from 1st October 2016 relating to contracts with an inception or renewal date before 1st October 2016 will pay the old rate of IPT provided it does not relate to a new risk and is processed by Ansvar before 1st February 2017
- MTA’s for a policy that incepts or renews from 1st October 2016 will pay the new rate of IPT
- All MTA’s processed by Ansvar from 1st February 2017 will pay the new rate of IPT.
The rate of IPT refunded will be subject to the rate of IPT charged on the initial premium that is being adjusted.
- MTA’s processed by Ansvar from 1st October 2016 where the inception or renewal date was before 1st October 2016 will pay the old rate of IPT
- MTA’s for contracts incepted or renewed after 1st October 2016 the new rate of IPT will apply.
For annual insurance contracts that incepted or renewed before 1st October 2016 will pay the old rate of IPT rate on all instalments (full premium is booked and processed by Ansvar by 31st January 2017). For MTA’s with an additional or return premium that are paid by instalments, refer to the relevant paragraph above.
Paying in Advance
The date that the premium is paid will not influence the rate of IPT due to Ansvar being on the Special Accounting Scheme. The IPT rate will be based on the inception, renewal or MTA effective date.
Quotes Prior to 1st October 2016 in a Guarantee Period
- Inception, renewal or MTA effective date before 1st October 2016, quote the old rate of IPT
- Inception, renewal or MTA effective date from 1st October 2016, quote the new rate of IPT
- An expected inception date before 1st October 2016, quote at the old rate of IPT but if accepted with an inception date after 1st October 2016 then the new rate of IPT applies.
Change in Renewal Date
A request for early cancellation of an existing policy to take out a new policy may be considered on an individual basis. This is not caught by the HM Revenue and Customs (HMRC) anti-forestalling provisions.
Premiums Notified to Ansvar via a Bordereaux
Brokers should ensure their systems are in line with HMRC rules. Premiums that are submitted to Ansvar via a bordereaux should comply with the following:
- All bordereaux need to be submitted at transactional level
- Effective dates shown
- The IPT rate shown and split between the two rates
- All bordereaux must be submitted by the due date and within agreed contractual timescales.
Extension of the Period of Insurance
If a customer requests an extension to their current policy that incepted or renewed prior to 1st October 2016, care must be taken to ensure compliance with the HMRC anti-forestalling provisions.
- To extend the period of cover on a policy incepted prior to 1st October 2016 e.g. to fall into line with the customer’s other insurance policies, the additional premium would be subject to the old rate of IPT if processed by 31st January 2017
- If an extension has this been made to avoid paying IPT at the new rate, then the additional premium would be subject to the new rate of IPT.