Insurance Premium Tax
|An aspect of fiscal policy|
||The examples and perspective in this article may not represent a worldwide view of the subject. (March 2014)|
The main EU legislation regarding VAT (Council Directive 2006/112/EC) states that insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents are exempt from VAT.
The Insurance Premium Tax (IPT) was announced by Kenneth Clarke in the November 1993 Budget and introduced with the Finance Act 1994 which received Royal Assent on 3 May 1994. IPT is under the care and management of HM Revenue & Customs.
IPT raised £2.3 billion in the fiscal year 2009/10.
The main law relating to IPT includes:
- The primary legislation establishing the principles of IPT is the Finance Act 1994, sections 48-74 and Schedules 6A, 7 and 7A, as amended by the Finance Acts 1997, 1998,1999, 2003, 2007, 2008, 2009 and 2010.
- The main secondary legislation relating to IPT is the Insurance Premium Tax Regulations 1994 (Statutory Instrument 1994/1774 - as amended) which gives more details about the operation of the tax.
There are two different insurance premium tax rates:
- A standard rate of 6 per cent
- A higher rate of 20 per cent
Insurers providing taxable insurance are required to register and account for IPT, as must intermediaries who sell insurance subject to the higher rate of IPT and charge a separate insurance-related fee on top of the premium itself.
1 October 1994 to 31 March 1997 - a single rate of 2.5 per cent
From 1 April 1997, two rates where charged.
- 1 April 1997 to 30 June 1999 - a standard rate of 4 per cent;
- 1 July 1999 to 3 January 2011 - a standard rate of 5 per cent.
- From 4 January 2011, the standard rate rose to 6 per cent.
- 1 April 1997 to 4 January 2011 a selective higher rate of 17.5 per cent on certain types of insurance arranged through certain suppliers of other goods and services, in line with VAT.
- From 1 August 1998, the higher rate was extended to all taxable travel insurance, regardless of the type of supplier.
- From 4 January 2011, the higher rate rose to 20 per cent, in line with VAT.
All types of insurance risk located in the UK are taxable unless they are specifically exempted. Exemptions from this tax include:
- life insurance, permanent health insurance and all other ‘long term’ insurance, except medical insurance
- commercial aircraft and some associated liabilities
- commercial ships and some associated liabilities
- lifeboats and lifeboat equipment
- foreign or international railway rolling stock and some associated liabilities
- export finance
- commercial goods in international transit
- block insurance policies held by Motability which covers all disabled drivers who lease their cars and motor cycles through the scheme
- risks located outside the UK, and
- the Channel Tunnel
Businesses are required to register for IPT if they are:
- an insurer who receives or intends to receive taxable insurance premiums.
- an intermediary who charges a fee to the insured in addition to the amount of higher rated premium due.
Businesses must be registered from the date they receive (or someone receives on their behalf) their first taxable premium. Businesses must inform HM Revenue & Customs within 30 days of forming the intention of receiving taxable premiums as the insurer.
- Financial services (broader industry to which insurance belongs)
- Financial Services Authority (body that regulates financial services within the UK)
- HM Revenue & Customs
Notes and references
- "Insurance Premium Tax: guide for insurers". www.gov.uk. HM Government. Retrieved 29 December 2014.
- IPT - Insurance Premium Tax Manual. IPT03150: HM Revenue & Customs. Retrieved 29 December 2014.
- Seely, Antony (29 June 2010). Standard Note - SN1425 - Insurance premium tax. House of Commons Library. Retrieved 29 December 2014.
- IPT - Insurance Premium Tax Manual. IPT03200: HM Revenue & Customs. Retrieved 29 December 2014.
- "Notice IPT1: Insurance Premium Tax". www.gov.uk. HM Government. Retrieved 29 December 2014.
- "Insurance premium tax". www.ifs.org.uk. Institute of Fiscal Studies. Retrieved 29 December 2014.