Insurance Premium Tax

5th December 2017

  1. The IPT Standard Rate will Increase by 2% from 10% to 12% on the 1 June 2017.As announced at Autumn Statement, the Government will introduce legislation in the Finance Bill 2017 to increase the standard rate of IPT from 10% to 12% in the United Kingdom. The changes will take effect from 1 June 2017 for premiums treated as received on or after that date relating to risks for which the period of cover under the terms of an insurance contract begins on or after that date.From 1 June 2018, the new rate applies to all premiums, regardless of whether they are received in respect of new or existing risks and of when the cover for those risks began under the contract.
  2. Changes to Implementation ArrangementsAfter representations from the insurance industry, the implementation arrangements have changed from those applied to previous rate rises. HMRC & HMT consulted with industry representatives on ways of simplifying and improving the way rate changes were introduced in future and the new implementation arrangements for this rate rise follow on from those discussions. See 5 below for more information
  3. Anti-forestalling/anti-avoidance ProvisionsThe anti-forestalling provisions will be reviewed and any changes announced at Budget 2017.
  4. The Standard Rate of IPTThe new rate will not apply to all insurance premiums; it will only apply to premiums received under general insurance policies, such as motor, property, liability or medical insurance, which are subject to IPT at the standard rate.  Some insurance – such as certain insurance sold with car and domestic appliances and all travel insurance is subject to the higher rate (20%) and will not be affected.About 80% of premiums for insurance contracts are not liable to IPT at all, for example life assurance and other long term insurance. 
  5. When the Rate Rise appliesFor previous rate rises, when to apply the new rate depended mainly on when the policy incepted and what tax point method the insurer chose to operate when they registered for IPT with HMRC – the cash receipt method or the special accounting scheme. More information can be found in Notice IPT 1Insurance Premium TaxFor this rate rise, the most important consideration is when the cover for the risk/s contained in the insurance policy begins and whether it begins before or after the date of the change in rate (i.e. 1 June 2017). It is also necessary to consider whether the premium in respect of that cover is treated as received (i.e. has a tax point under either the SAS or cash method) on or after 1 June 2017. Unless the anti-forestalling rules apply (for further information, see Notice IPT 1), premiums with tax points falling before that date will be taxed at the old rate regardless of when the cover under the policy commences.There is also a backstop date which means that all premiums treated as received, i.e. with tax points under either the SAS or cash method, that fall on or after the 1 June 2018 will be taxed at the new rate, regardless of when the cover for the risks under the insurance policy began.
  6. Additional PremiumsIf there is a mid-term adjustment (MTA) to an existing policy which commenced before 1 June 2017, any additional premium received by insurers in respect of new risks for which the cover began after the implementation date of 1 June 2017 will be liable to tax at the new rate.
  7. Refunds to Customers/Tax CreditsIf any adjustment to a taxable insurance policy results in a refund to the customer, this is known as a return premium. A refund from HMRC of the IPT accounted for on that premium will also be due, and the insurer should claim the overpaid tax at the original rate charged to the customer and accounted for to HMRC, not at the rate of tax that is in force at the time the return premium is paid.
  8. Premiums Paid by Instalment
    Where premium instalment payments are made in respect of risks for which cover began before the implementation date, 1 June 2017, and are received by insurers (i.e. have a tax point) before 1 June 2018, then they are liable to IPT at the old rate of 10%.

    Where the period of cover relating to risks in an insurance contract begins on or after 1 June 2017, and the customer/insured pays by instalments for their insurance policy. Any instalments that fall on or after 1 June 2017 will be due at the new rate of 12%.

    If any instalments are  received by insurers (i.e. have a tax point) on or after 1 June 2018 then they will all be at the new rate of 12% , regardless of when the cover for the risks in the contract began.

    If a premium instalment payment has a tax point falling between 1 June 2017 and 1 June 2018 and is in respect of an insurance policy that covers a number of risks; some of which were included in the contract when cover first commenced prior to 1 June 17 and some of which have been added after that date, then, if the instalment premium has been increased to reflect the new risks added, it will need to be apportioned between the amount that relates to cover for the original risks and the amount that relates to cover for the new risks and taxed at the appropriate rate for each.  

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  • Author : MGAA
  • 5th December 2017