Insurance Premium Tax

Le_Kirk

Does a breakdown service such as Green Flag, RAC, AA need to charge IPT? If they provide a breakdown service, i.e. their own vehicles attend to you, is it, in fact insurance and are they maybe charging IPT when they should not be? I am trying to make a difference between a pure breakdown service and an insurance such as the type that allows you to call out a local garage (for example) and then claim the cost from your breakdown insurance/assistance provider.

AdrianC

4.7 Roadside assistance insurance Subscriptions to motoring organisations usually include an element for assistance in the event of a breakdown which relates to a taxable contract of insurance (albeit one under which the benefits to the insured, the member, are in kind, rather than in monetary form). The element of the membership fee that’s attributable to this type of insurance is liable to IPT. Where this type of insurance is sold in the circumstances outlined in paragraph 6.2 the insurance will be liable to IPT at the higher rate.

https://www.gov.uk/government/publications/notice-ipt-1-insurance-premium-tax/notice-ipt1-insurance-premium-tax
Second google result for "breakdown service IPT"...

If it didn't fall under IPT, it'd almost certainly fall under VAT.

angrycrow

You are insuring against the risk that you might breakdown at some point over the year covered by the policy and in return if you do break down they will collect your car under the terms of the policy. As you are purchasing an insurance policy IPT is payable.

Le_Kirk

Thanks both. Understand about VAT, not an issue but I am not buying an insurance policy per se, I am buying a breakdown recovery service. I am trying to think of an analogy but cannot. Reason for asking is that my subscription is up for renewal and whilst starting the interminable search for a sensible cost, I read the renewal letter that states "price includes an element of IPT where applicable." (My bold and italics). There was no breakdown (no pun intended) of the fee so I could not see which elements (if any) were insurance. It set me to thinking why would any part of the fee be considered insurance. I guess when I phone to complain and get a reduction I can ask them.

AdrianC

If you say "But this shouldn't be subject to IPT"... then you won't get a reduction if your complaint is taken seriously - you'd be charged more.

Let's say that your base before-tax charge is £100.
If it's an insurance premium, then it's subject to 10% IPT. You pay £110.
If it's NOT an insurance premium, then it's almost certainly subject to 20% VAT. You pay £120.

The only time that'd be a reduction is if you're buying it through a VAT-registered business, so can reclaim the VAT.

'course, since you won't be taken seriously, it's academic. The government think it's an insurance policy - you're insuring against your car breaking down - if it does, you make a claim which is paid in the form of using their resources to fix and/or recover your vehicle. If there are other services included in your payment - a magazine subscription, other membership benefits - they would be taxed accordingly. The breakdown companies have accountants and tax specialists working on their behalf to ensure it's all done according to the law.