Insurance Premium Tax

20 October 2015

The UK Government announced that with effect from 1 November 2015 the standard rate of UK Insurance Premium Tax (IPT) will increase from 6% to 9.5%. A higher rate of IPT (20%) applies to travel insurance, and certain insurance sold alongside motor vehicles and some household electrical goods, this rate was first introduced in 1997 and set at 17.5% to block VAT avoidance schemes. This higher rate of IPT remains unchanged at 20%.

Premiums are usually quoted exclusive of IPT. However, the total amount payable by the insured under taxable insurance policies is inclusive of IPT and the insurer is responsible for accounting for IPT to HM Revenue & Customs (HMRC). Implementation of the effective date for the increase from 6% to 9.5% on contracts which incepted prior to 1st November 2015, will depend on the tax accounting procedures adopted by the insurer.

When is IPT normally due? 

The tax point is the date when IPT must be applied to a taxable premium. The basic tax point is when a premium or instalment is received by the insurer, broker or any other agent of the insurer – this is often referred to as the cash receipt method. However, if an insurer opts to use the special accounting scheme the IPT tax point is created when a premium is written in the insurer's accounts. This can either be the date of physical writing or the date the premium is shown as due. The insurer cannot select its tax system on a case by case basis; the method used will be the same for their entire book. Change can only be made by application to HMRC with appropriate rational.

The following notes are for general guidance only as to how the changes will be implemented.

Policies incepting or renewing on or after 1st November 2015

Under both the cash receipt method and the “special accounting” scheme, the new standard rate of IPT of 9.5% will apply to all taxable premiums for policies incepting or renewing on or after 1st November 2015.

Concessionary Period for Policies that incepted prior to 1st November 2015

There are transitional arrangements that allow certain premiums to continue to be processed at the old rate (6%) under a four month concessionary or transitional period ending on 29th February 2016. This relates to insurers using the special accounting scheme and where the premiums relate to policies incepting prior to 1st November 2015 and are processed by the 29th February 2016. Insurers using the ‘cash receipt’ method will be charged at the higher rate irrespective of policy inception.

Download IPT bulletin

For more information please contact Andrew Thornton, Construction Account Executive on +44 (0)20 7528 4489 or email andrew_thornton@jltgroup.com