The Chancellors 2016 autumn statement included an increase to the standard rate of insurance premium tax (IPT) from 10% to 12% on 1 June 2017. The Chancellor noted that the standard rate remains below the VAT rate so further increases may be anticipated in due course.
This is a quick reminder of the change and the dates to remember when the transitional period ends on 31 May 2018:
- Premiums relating to all policies with a start/renewal date on or after 1 June 2017 will be liable to 12% IPT
- Premiums relating to all policies with a start/renewal date up to 31 May 2017 will be liable to 10% IPT provided the premium is booked by 31 May 2018
- All premiums booked on or after 1 June 2018 will be liable to 12% IPT irrespective of the tax rate charged to the policyholder or collected by any intermediary involved
- Any additional premiums or other policyholder charges booked by 31 May 2018 will be liable to IPT at the rate applicable to the preceding transaction (as above) – see ‘new risks’ section below
- Any additional premiums or other policyholder charges booked on or after 1 June 2018 will be liable to IPT at 12%
- Any premium credits should attract IPT credit according to the rate of tax appropriate to the initial or additional premiums.
Guidance has been agreed between the ABI and HMRC as to what constitutes a new risk. Broadly, if the policy as initially taken out provides for further or additional risks to be covered over the term of the policy, then additional premium relating to such further or additional risks will attract IPT at the rate applying to the preceding transaction (i.e. the initial premium).
If there is a Mid-Term Adjustment (‘MTA’) to an existing policy which commenced before 1 June 2017, any additional premium received by AXA in respect of new risks – i.e. a new policy has to be issued – for which the cover began after the implementation date of 1 June 2017 will be liable to tax at 12%.
An MTA will not be in respect of a new risk if it relates to cover permitted under the policy at the time the policy commenced, so that if that cover has not yet commenced we are able to provide that cover if and when it is requested at any time during the life of the policy (subject to it meeting any conditions required by us and payment of any additional premium due). Additional premiums for such MTAs will be taxed at 10%, if received before 1 June 2018.
The transitional period is to allow for Delegated Authority (DA) and Bordereau (BDX) cases where the premium is incurred but not invoiced/debited for a number of months.