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%
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.
New Business and Renewals
- New business and renewals effective before 1st June 2017 will pay the old rate of IPT.
- New business and renewals effective on or after 1st June 2017 will pay the new rate of IPT.
- The rate of IPT paid is based on the inception or renewal date of the policy.
- The rate of IPT refunded on any mid-term adjustments (MTA’s) will be at the same rate of IPT that was charged when the premium was originally debited.
- The overriding consideration is that any rebated IPT must not exceed the amount of IPT that was originally paid.
Annual Policies Paid by Instalments
- New business and renewals effective before 1st June 2017 will pay the old rate of IPT on all instalments and on any MTAs.
- New business and renewals effective on or after 1st June 2017 will pay the new rate of IPT on all instalments and on any MTAs.
- Any MTA with an additional premium effective on or after 1st June 2017 will pay the new rate of IPT.
Paying in Advance
- The date that the premium is paid will not influence the rate of IPT.
- The IPT rate will be based on the policy inception or renewal date.
Premiums Notified to Ansvar via Bordereaux
Brokers should ensure their systems are in line with HMRC rules. Premiums that are submitted to Ansvar via bordereaux should comply with the following:
- 10% rate of IPT for policies incepted or with a renewal date before 1st June 2017 and on any MTAs.
- 12% rate of IPT for policies incepted or with a renewal date on or after 1st June 2017 and on any MTAs.
- The IPT rate must be shown and split between the two rates.
- All bordereaux must be submitted by the due date and within agreed contractual timescales.
From 1st June 2018 all transactions will be subject to the 12% rate of IPT.
Any “10%” business, particularly bordereaux business, must be processed by Ansvar before 1st June 2018, so it is important for brokers to submit documentation to Ansvar well before 1st June 2018 to enable us to process premiums in good time if the old rate of IPT applies. Otherwise, the broker will be responsible to pay the shortfall of IPT in such circumstances of late submission.
HMRC Anti-forestalling Provisions
HMRC has anti-forestalling provisions in place designed to prevent tax avoidance e.g. through extending periods of insurance or disguising new risks as additions to existing policies or pre-paying premiums.