While Insurance Premium Tax (IPT) has been active since 1994, it remains one of the least discussed taxes in British finance. As is often the case, today’s blog is designed to shed a light on a topic that we’ve recently discussed with some of our clients, where there was a little uncertainty.
What is Insurance Premium Tax?
As the name suggests, insurance premium tax is a tax designed to raise revenue from the insurance industry. It exists because, at the time it was introduced, a European Union law meant that the simpler solution (applying VAT) was not possible for this industry.
For the most part, IPT is invisible because it is built into the cost of your insurance. That’s also why it doesn’t get discussed very often, which is why when people outside the insurance industry find out about it, IPT can come as a surprise.
What Are the Current Insurance Premium Tax Rates?
For most things, IPT is taxed at the standard rate, which is 12%.
A higher rate applies to certain types of vehicle insurance as well as all travel and electrical appliances insurance. That higher rate is, at the time of writing, 20%, which happens also to be the standard rate for VAT.
What is Exempt from Insurance Premium Tax?
As always, any list of exemptions provided in this blog may leave you wondering if yours is an edge case. We would usually direct you to contact us for a discussion but in this case you can rest assured it will be taken care of by your insurer.
In general, for a business:
- Re-insurance
- Insurance on commercial ships or aircraft
- Insurance on commercial goods in international transit
- Premiums concerning risks located outside the UK
- Most long-term insurance
Are all exempt from IPT, and therefore you may be able to find policies for these which are cheaper to policies on comparable insurance premiums.
There are also some other categories that are exempt but which are not relevant to business expenses.
It’s worth noting that while IPT does not apply to premiums where the risk is located outside the UK, other countries operate similar taxes. France, for example, has a much more complex framework for its equivalent, which starts with a baseline of 9% but can go as high as 33% in other cases.
Is it Possible to Recover Insurance Premium Tax?
Owing to the way that IPT is paid directly by insurers, it usually cannot be claimed back.
Why Does This Matter?
The biggest question of all, especially as IPT is handled before it reaches you: Is there a reason to monitor this?
Ultimately, the reason to pay attention is this: It’s always worth knowing what goes into any business expenditure, and any business will be dealing with insurance regularly. If you know what IPT should be for your policies, it may help you judge the value of different policies more accurately.
