Insurance premium tax changes may be coming

Tue 05 Nov 2019

Earlier this year the Government issued a call for evidence on the operation of insurance premium tax (IPT). It asked for comments on how the administration and collection of IPT could be improved, and also for comments on how emerging practices that could lead to unfair tax outcomes might be effectively addressed.

One of the areas addressed in the call for evidence was the different IPT treatment and administration fees for issuing an insurance contract that is subject to IPT. Where these are subject to separate contracts, the contract for the administration and fees is not subject to VAT or IPT.

Options for reform discussed in the call for evidence

• Bring certain administration fees into the scope of IPT where corporate structures are used to artificially manipulate the level of commission and fees received.  
• Extend the scope of IPT to include administration fees, aligning their treatment with commission.

The way contracts are written can have a significant impact on their tax treatment, and insurance administration fees are no exception. There is a four year cap on making reclaims for errors in IPT declarations, and a penalty and interest regime where IPT has been underpaid.

Businesses selling insurance subject to IPT should examine their current and historic contract arrangements to ensure their IPT has been and is correctly accounted for. We do not yet know when or if the Government might introduce any changes to the scope of IPT, but a review of current and existing arrangements before any changes are made could be helpful. There will not now be a Budget on 6 November 2019, but HMRC and the Treasury are likely still to be working on IPT proposals that could appear in the next Budget.

An HMRC Notice IPT1 provides further information on the operation of UK insurance premium tax.

Please get in contact with a member of the Mazars indirect tax team for a further discussion on the application of IPT to your business.