Insurance Premium Tax

Cotta

Good Afternoon All,

What is the above tax for and who pays it (client or insurance company), I also note there are different percentage levies for this tax - why is this?

Thanks you.

inkyblue_2

the tax is collected by Insurance Companies and passed to the government. Current rate is 6% but 20% for Travel Insurance. It is not payable on Life Insurance and most critical illness policies. (I think this depends if the policy is sold by a general or life insurer) ie. accidental death could be under a Personal Accident (general) and would therefore attract IPT.

It is paid by the customer, I think that travel attracts a higher level to match VAT as it was frequently sold outside the typical insurance route for example a travel agent and a level playing field was required.

Cotta

So does this sort of tax apply to your regular private car policy?

Quentin

Yes.

(But they are VAT free)

Cotta

inkyblue wrote: »

the tax is collected by Insurance Companies and passed to the government. Current rate is 6% but 20% for Travel Insurance. It is not payable on Life Insurance and most critical illness policies. (I think this depends if the policy is sold by a general or life insurer) ie. accidental death could be under a Personal Accident (general) and would therefore attract IPT.

It is paid by the customer, I think that travel attracts a higher level to match VAT as it was frequently sold outside the typical insurance route for example a travel agent and a level playing field was required.

So if a General Insurer sells Life insurance or Critical illness cover then it is still liable for the IPT levy?

Finally I understand travel insurance having a higher IPT due to it being sold outside of the insurance industry and therefore was not receiving the IPT, however what about those policies that are sold within the insurance industry, are these still eligible for the higher rate?

Quentin

Travel insurance attracts the 20% rate irrespective of who supplies it.

Cotta

Quentin wrote: »

Travel insurance attracts the 20% rate irrespective of who supplies it.

Would this still mean that policies sold via Travel Agents are excempt from any IPT?

BJV

Insurance premium tax is as other post's have said a tax which insurance companies pay directly to the government. For want of a better word VAT on insurance.

The rate you pay will depend not only on the type of insurance you buy also where you buy it from.

For example if you buy an add on insurance from your motor dealership, say tyre insurance they will be legally bound to charge you IPT at a higher rate of 20% where as if you buy independently this is just 6 %.

To but it politely if you are buying a policy from the same place that you are buying your vehicle from they have to charge you the higher rate. This is because if they can effect the cost of the vehicle and therefore the amount of VAT the government is paid they have to charge 20 %.

Although there is no actual link between IPT and Vat the higher rate is normally a mirror image.

Cotta

BJV wrote: »

To but it politely if you are buying a policy from the same place that you are buying your vehicle from they have to charge you the higher rate. This is because if they can effect the cost of the vehicle and therefore the amount of VAT the government is paid they have to charge 20 %.

Do you mean that the motorship can lower the cost of the vehicle and as a result the buyer pays less VAT, therefore the government loses out? If this is the case then could the same principle apply in relation to buying the policy direct from an insurer as they can sometimes adjust/lower their policy prices in order to gain custom therefore the government again gets less tax.

BJV

A long long time ago the insurance premium tax rates where the same.

This mean't that un ethical dealerships where tempted to carry out some very creative accounting.

For example a car is sold for £8000,00 ( cost to the dealership £7,000 ) tyre insurance £300.

This would mean the dealership would either pay the vat on a new car cost of 8K or vat on the profit that they made on the sale of the used vehicle.

They would also lower rate IPT on sale of tyre insurance £300.

Not saying for one moment that every dealership did this but some most definitely did.

If they then changed the sale price of the car to £7250 and increased the cost of the tyre insurance to £1050 the cost to the customer was the same still £8300 but the amount that HMRC received was less.

Very naughty! Very stupid!

HMRC are not silly, and most definitely not stupid and Tax avoidance is not something that any person or business should ever attempt but it was a legal loop hole and one which they quiet rightly closed.

By making the rates the same there was no incentive to alter the price.

In fairness to dealerships add on insurance must be charged at a higher rate and it is not their fault. Completely beyond their control.

Ref buying else where the government has already than the VAT on the sale of vehicle and as they ( in my opinion anyway) do not want to dis-courage people from buying insurance they keep the rate are the lower of the two tiers.

Yes if the insurance company reduces the cost they do get less but they still get something and something is better than nothing. The alternative is to increase the cost across the board but this would put a massive price hike on most insurances we buy 14 % on top would mean that lots of members of the public would not be able to insurance themselves, their properties and their cars and this could lead to massive problems.

Cotta

BJV wrote: »

A long long time ago the insurance premium tax rates where the same.

This mean't that un ethical dealerships where tempted to carry out some very creative accounting.

For example a car is sold for £8000,00 ( cost to the dealership £7,000 ) tyre insurance £300.

This would mean the dealership would either pay the vat on a new car cost of 8K or vat on the profit that they made on the sale of the used vehicle.

Why did they have an option on what VAT to pay? Surely they would always pick what works out least expensive?

They would also lower rate IPT on sale of tyre insurance £300.

Does this mean prior to the change that Dealerships always charged the lower rate?

Not saying for one moment that every dealership did this but some most definitely did.

If they then changed the sale price of the car to £7250 and increased the cost of the tyre insurance to £1050 the cost to the customer was the same still £8300 but the amount that HMRC received was less.

Very naughty! Very stupid!

HMRC are not silly, and most definitely not stupid and Tax avoidance is not something that any person or business should ever attempt but it was a legal loop hole and one which they quiet rightly closed.

By making the rates the same there was no incentive to alter the price.

In fairness to dealerships add on insurance must be charged at a higher rate and it is not their fault. Completely beyond their control.

Ref buying else where the government has already than the VAT on the sale of vehicle and as they ( in my opinion anyway) do not want to dis-courage people from buying insurance they keep the rate are the lower of the two tiers.

Yes if the insurance company reduces the cost they do get less but they still get something and something is better than nothing. The alternative is to increase the cost across the board but this would put a massive price hike on most insurances we buy 14 % on top would mean that lots of members of the public would not be able to insurance themselves, their properties and their cars and this could lead to massive problems.

Good Example and helps to make sense on the issue one have have two points queried in bold above.

One final query, the first response to this question advised that Travel Insurance is 20%, is this always the case or only when bought outside of an insurance company?