Insurance Premium Tax (IPT)

Ollie_

I'm an individual, so I can't claim tax back, however I'm interested in whether I should buy breakdown cover from my car insurance company or a third-party.

As far as I can gather, an insurance premium atracts 5% tax and is VAT free. (Premium * 105%)

Also, break down cover is a service so is VAT free and does not attract the 5% IPT either. (Services * 100%)

Therefore, why does my insurer add 5% tax to both my premium and my breakdown cover? e.g. (Premium + Services) * 105%

So is a third-party breakdown cover company better value?

Any advice would be appreciated!

benjaminM

Interesting question. I would have thought the same tax applys whether you buy from an insurer or a breakdown company. I'll look into that as I'm not totally sure. In the case of travel insurance you pay ipt whether you buy from it an insurer, broker, travel agent or supermarket. I'm suprised breakdown does not work in the same way. I'm seeing an Aviva rep next week (they own rac) I'll find out.

bouncydog1

Why do you think that breakdown cover is tax free because it is a service? The service is being covered by an insurance product which is subject to IPT dependant on where the risk is based. E.G. if offshore and no IPT is payable in that country then the policy will not be subject to IPT.

This does not appear to be any different to white goods cover for breakdown, where you are buying an insurance policy to cover the cost of a repair and this product is subject to IPT.

The fact that breakdown does not attract VAT is irrelevant and different to IPT - loss adjusting is a service and attracts VAT depending on the type of claim - the whole issue is very complex.

Ollie_

After a little more research I found what I was looking for. Roadside assistance does attract IPT.