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This publication is available at https://www.gov.uk/government/publications/notice-ipt-1-insurance-premium-tax/notice-ipt1-insurance-premium-tax
This notice cancels and replaces Notice IPT1 (February 2017) and Notice IPT2 (February 1999). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.
1.1 What this notice is about
This notice explains:
- what Insurance Premium Tax (IPT) is, how it applies to insurance contracts and who it affects
- how to register for IPT and account for the tax
- what to do in the event of a change of rate of tax
- what to do if IPT is paid to us in error
- the penalties that you may incur if you don’t comply with regulations
- where to get further advice
1.2 What’s changed
The standard rate rose from 10% to 12% on 1 June 2017.
Section 15 and 16 have been added to account for the changes to transitional arrangements and the new implementation method.
Anti-forestalling rules have been updated to match those in Finance Act 2017.
1.3 The legal basis for IPT in the UK
The main law relating to IPT is in the:
- Finance Act 1994, sections 48-74 and Schedules 6A, 7 and 7A, as amended by the Finance Acts 1997, 1998,1999, 2003, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017 - this is the primary legislation, which establishes the principles of IPT
- Insurance Premium Tax Regulations 1994 (Statutory Instrument 1994/1774 - as amended) which gives more details about the operation of the tax
Other legislation used to define the liability of certain types of insurance and the location of the risk for IPT purposes, is found in the statutory instruments made under the Financial Services and Markets Act 2000, in particular the Regulated Activities Order (SI 2001/544) and the Law Applicable to Contracts of Insurance Order (SI 2001/2635).
2. Scope of IPT
2.1 What IPT is
IPT is a tax on premiums (see paragraph 3.1) received under taxable insurance contracts (see paragraph 2.2).
There are 2 rates:
- standard rate of 12% (see ‘Tax fraction’ at paragraph 12.8)
- higher rate of 20% (see ‘Tax fraction’ at paragraph 12.8) for insurance supplied with selected goods and services (see paragraph 2.4)
The 2 rates before 1 June 2017 were:
- standard rate of 10% (see ‘Tax fraction’ at paragraph 12.8)
- higher rate of 20% (see ‘Tax fraction’ at paragraph 12.8) for insurance supplied with selected goods and services (see paragraph 2.4)
All types of insurance risk located in the UK (see paragraph 5.2) are taxable unless they’re specifically exempted (see section 5).
2.2 Taxable insurance contracts
IPT doesn’t apply to contracts entered into by insurers, which aren’t contracts of insurance, even if they’re treated as insurance for regulatory purposes. Neither does it apply to guarantees (see paragraph 4.12) and financial instruments (see paragraph 4.6).
Any insurer receiving premiums in relation to taxable insurance contracts is engaged in a taxable business for the purposes of IPT. This isn’t limited to those companies authorised by the Financial Conduct Authority (FCA) to carry on insurance business. Furthermore, entities other than limited companies may carry on insurance business and be registerable for IPT, as may insurers without an establishment in the UK (see paragraph 11.3 which deals with tax representatives).
2.3 Exempt insurance contracts
All contracts of insurance are liable to IPT unless they’re specifically exempted. The exemption overrides any liability to higher rate IPT. The following insurance contracts are exempt from IPT:
- life insurance, permanent health insurance and all other ‘long term’ insurance, except medical insurance
- commercial aircraft and some associated liabilities
- spacecraft and some associated liabilities
- commercial ships and some associated liabilities
- lifeboats and lifeboat equipment
- foreign or international railway rolling stock and some associated liabilities
- export finance
- commercial goods in international transit
- block insurance policies held by Motability which covers all disabled drivers who lease their cars and motor cycles through the scheme
- risks located outside the UK
- the Channel Tunnel
There’s more information on exempt insurance contracts in section 5.
2.4 Higher rate of IPT
2.4.1 Insurance contracts liable to the higher rate
The higher rate of IPT is 20% (before 4 January 2011 it was 17.5%). It applies to insurance sales in 2 trading sectors where insurance is sold in relation to goods and services which are subject to VAT - sales of:
- motor cars, light vans or motor cycles (see section 6)
- electrical or mechanical domestic appliances (see section 7)
The higher rate also applies to sales of travel insurance (see section 9).
2.4.2 Insurance relating to the sale or hire of certain goods
All travel insurance is subject to the higher rate of IPT, but in the other sectors the selective higher rate applies to any insurance sold in relation to certain goods (whether sold, leased or hired) only when sold by or through a person who supplies those goods as well. Full details are given in sections 6 and 7.
This insurance won’t be caught by the higher rate when it’s taken out either through an intermediary (for example, a high street broker), or with an insurer, who isn’t covered by the description in paragraphs 6.2 and 7.2. Special arrangements also apply when such insurance is provided free of charge or at less than the cost to the intermediary (see paragraphs 6.4, 7.4 and 9.7).
2.4.3 Taxable intermediaries
If an intermediary selling insurance subject to the higher rate charges the insured a fee in addition to the amount of premium due under a higher rate contract of insurance, the intermediary may be liable to register and account for IPT at the higher rate on the full amount of the fee charged.
You’re a taxable intermediary when you charge an insurance related fee (see paragraph 2.4.4) and you fall into one or more of the categories at a), b) or c) below.
(a) the person arranging or providing an insurance contract relating to a motor vehicle and you’re also a:
- supplier of motor cars or motor cycles
- person connected to a supplier of motor cars or motor cycles
- person who pays a commission or fee relating to the insurance contract covering a motor car or motor cycle to a person described in the first 2 bullet points above
(b) the person arranging or providing an insurance contract relating to relevant electrical or mechanical domestic appliances and you’re also a:
- supplier of electrical or mechanical domestic appliances
- person connected to a supplier of electrical or mechanical domestic appliances
- person who pays a commission or fee relating to the insurance contract covering an electrical or mechanical domestic appliance to a person described in the previous 2 bullet points
(c) the person arranging or providing a travel insurance contract.
2.4.4 Insurance related fees
You’ll be treated as a taxable intermediary if you’re one of the people described in paragraph 2.4.3, and:
- you charge a fee which is over and above the insurance premium at or about the time when an insurance contract is taken out
- the fee is charged in connection with an insurance contract which is liable, in whole or in part, to the higher rate of IPT
- the fee is charged in respect of an insurance related service
- the fee is charged to the insured party (or someone acting on their behalf)
‘Premium’ means all payments receivable under the contract of insurance by an insurer. For this purpose payments under the contract of insurance received on an insurer’s behalf by third parties are treated as received by the insurer. In particular, this includes any payments in connection with:
- the risk insured
- cost of administration (that’s, administrative costs which are charged to the policyholder)
- commission (paid to or retained by brokers or other intermediaries)
- tax (premiums are tax inclusive for IPT purposes)
- interest (where credit arrangements allow for payment in instalments, whether or not the payment for this facility is called interest)
However, credit charges, whether or not the payment for this facility is called interest, aren’t treated as part of the premium where the charge is made under a separate contract, for example, a contract regulated by the Consumer Credit Act.
3.2 Chargeable amount
The amount on which IPT is due is the premium (exclusive of tax) that an insurer receives, or is entitled to receive, under a taxable contract of insurance (or which a third party receives on the insurer’s behalf).
3.2.1 Chargeable amount artificially reduced to avoid IPT
Before 8 March 2017, Section 66 of the Finance Act 1994 provided for anti-avoidance measures designed to prevent schemes which undervalue premiums. These allow HM Revenue and Customs (HMRC) to direct that, for contracts of insurance between, for example, connected persons (see paragraph 8.1), IPT should be charged on the premium that would’ve been charged in ‘open market conditions’. We expect to only exercise these powers on an exceptional basis.
Since 8 March 2017, Section 66A of the Finance Act 1994 provides for the updated anti-avoidance measures to match the new rate rise implementation method.
3.2.2 Different rates of IPT on the same contract
Where a premium relates to a contract which covers both taxable and exempt risks, the chargeable amount is that part of the premium which is attributable to taxable risks. Where premiums relate to risks charged at both the higher and the standard rates of tax then there’re 2 separate chargeable amounts, one for the higher rated element and one for the standard rated element of the premium (see section 13).
3.2.3 Where the premium isn’t in money
A premium may consist wholly or partly of anything other than money. However, IPT should be accounted for on the entire value of the premium as defined above, whatever form the premium payment takes.
3.2.4 Money received by intermediaries
If you’re a broker or intermediary, the amounts you receive for arranging taxable insurance contracts may be included in the sum on which the insurer accounts for IPT. This will depend upon the contract under which you receive your payment and the IPT rate which applies to the contract of insurance. See paragraph 3.2.5 if you charge a ‘commission’ received under the insurance contract, or if you charge a ‘fee’ under a separate contract, see paragraphs 3.2.6 or 3.2.7. These arrangements aren’t, in any way, affected by the name given to any of the charges made (for example, ‘fee’, ‘commission’, and ‘discount’).
3.2.5 Commissions received by intermediaries
The amount on which the insurer must account for IPT includes any commission paid to or retained by an intermediary that forms part of the premium due under the contract of insurance (see paragraph 3.1).
In practice, intermediaries may decide to forgo some or all of the commission they’re entitled to in order to give discounts to the insured. The effect on the IPT liability depends on whether the discount is authorised or unauthorised, as described below.
If the intermediary has an agreed fixed rate of commission on the premium booked by the insurer and it’s clear that the insurer doesn’t consent to the intermediary accepting a lower commission in order to secure a sale, IPT is due on the full premium that’s set by the insurer, even if the customer pays a lesser amount.
Where the agreement with the insurer grants the intermediary delegated authority to set the gross premium and thereby to determine the level of commission payable to him (subject to any agreed minimum premium that’s receivable by the insurer) then IPT will be due on the amount actually charged to the customer or the agreed minimum premium, whichever is the highest.
3.2.6 Intermediaries’ fees for contracts liable to standard rate IPT
Where an intermediary makes an additional charge in relation to an insurance contract that’s taxable at the standard rate of IPT, and this charge is made under a separate contract to the contract of insurance then, provided the existence of this separate contract and this separate amount is identified in writing to the insured, these charges aren’t liable to IPT. Therefore, these fees shouldn’t be included in the intermediary’s notification of the premium to the insurer for the purposes of IPT.
However, there’re special rules relating to the fees charged under separate contracts, and this means that the amounts are seen as part of the premium charged to the customer (and liable to IPT) if all the following conditions are met:
condition A - the amounts are charged to individuals who enter into the contracts in their personal capacity
condition B - the separate contract is entered into as a condition of entering into the taxable insurance contract or the individual is unlikely to enter into the separate contract without also entering into the taxable insurance contract
condition C - the insured can’t negotiate the terms or the price of the separate contract
condition D - no comprehensive assessment of the individual’s risks is undertaken to arrive at the premium under the taxable insurance contract
3.2.7 Intermediaries’ fees for contracts liable to higher rate IPT
Where, under a separate contract, an intermediary makes an additional charge in relation to an insurance contract that’s liable to IPT at the higher rate, the intermediary may be required to register and account for IPT on the fee charged. See paragraph 2.4.3 for further details on ‘taxable intermediaries’.
3.3 Insurance contract for the purposes of IPT
An insurance contract will display many or all of the features listed below:
- there’s a legally enforceable contract between the insurer and the insured, which should identify clearly what’s being insured - it’s possible for the insurer or the insured each to consist of more than one person, all of whom are parties to the contract
- under the contract the insured (or a party on behalf of the insured) pays a premium, in return for which the insurer indemnifies them against losses or compensates them for damage or provides some corresponding benefit - the loss or damage will arise from one or more specified events, which adversely affect the interests of the insured
- the insured party must have an ‘insurable interest’ in the subject matter of the insurance (that’s, they must suffer a financial or other loss on the happening of the insured event)
- the premium the insurer charges is calculated with reference to the claims the insurer expects to meet from a pool of premiums, which the insurer has collected to cover the corresponding pool of risks
- the contract is one of utmost good faith under which the insurer requires the insured party to disclose any material facts before the insurer enters into the contract - if the insured fails to meet this condition the insurer can declare the contract void from the beginning and can refuse to pay any claims
- if the insured person breaches the contractual conditions of the contract (known as warranties) the insurer can declare the contract void from the date of the breach, whether or not a claim is made under the policy, and whether or not the breach is material to any claims subsequently made - this, of course, is a far stricter rule than applies in the general law of contract
- the insured has an absolute right to payment or assistance under a contract of insurance
4. IPT implications for different types of risk management
4.1 ‘Cost plus’ schemes
A ‘cost plus’ scheme is one where an amount is paid by an employer to provide employees with the benefit of private medical treatment. This amount is equal to the cost of the treatment plus the cost of administering the scheme. These schemes normally operate either under an insurance contract or through a trust fund.
4.1.1 Schemes provided by insurers
Where an employer arranges for an insurer to provide healthcare benefits to employees under a contract of insurance (see paragraph 3.3) all elements of the payment made to the insurer (including the cost to the insurance company of administering the scheme) will be treated as premium and subject to IPT.
For a cost plus scheme to be provided under an insurance contract, the insurer must assume some element of the insurance risk.
The insurance company may delegate the administration of a cost plus scheme to a Third Party Administrator (TPA), who may issue policies, collect premiums and perform similar services on behalf of the insurer. If any payment made to the TPA is due under a contract of insurance, then it’s part of the value of the premium and so liable to IPT.
4.1.2 Schemes which aren’t provided by insurers
A cost plus scheme needn’t be provided under a contract of insurance (see paragraph 3.3). For example, an employer may engage a TPA to administer a cost plus scheme which he provides. Where the payment of claims is discretionary and not under any contractual obligation, then fees paid to the TPA aren’t payments in relation to a contract of insurance and so aren’t liable to IPT.
If either the TPA or the employer takes out insurance against the costs of the scheme exceeding a specified amount (due, for example, to unusually high levels of sickness amongst the employees) the premium for this insurance is subject to IPT.
However, in cases where there’s a contractual obligation, for example between an employer and employees, to pay claims, then this arrangement may constitute a contract of insurance. In these circumstances, it’s advisable for the employer to check the position of his scheme with the FCA as he may be committing an offence under the Financial Services and Markets Act (FSMA) 2000. Where the contractual arrangements in place constitute insurance for regulatory purposes, any amounts charged will be subject to IPT.
4.1.3 Schemes involving trust funds
In practice the only likely non-insurance alternative method for employers providing healthcare schemes is that involving a trust that complies with the relevant HMRC guidelines. Under such an arrangement an employer sets up a trust fund, usually administered by a TPA, from which the medical bills of employees are met.
The obligations to meet claims under these trust fund arrangements are usually made under equity rather than under contract and so don’t create a contract of insurance between the participants (see paragraph 3.3 on what constitutes a contract of insurance). In such cases there’s no liability to IPT. However trust arrangements vary and it’s possible that some may create a contractual relationship under which payments are subject to IPT. If you’re unsure about the IPT liability of your health trust scheme please contact HMRC’s IPT Helpline.
4.2 Risk financing by ‘self-insurance’
Where an organisation or group of similar bodies (for example, schools or councils) feels it’s financially able to carry its own risks, or at least part of its risks, it may create its own reserve fund by putting money aside each year to cover future losses. In such situations, and where a contract of insurance doesn’t exist (see paragraph 3.3), there’s no liability to IPT. The organisation involved in this sort of risk management may decide that it only wishes to carry its own risk up to a certain level, and may purchase cover from a commercial insurer for the risk it wishes to transfer. This contract is liable to IPT in the normal way.
If an insured party negotiates a reduced premium because a policy involves a deductible (whereby a proportion of the insured loss is borne by the policyholder) then IPT is due only on the reduced premium.
4.4 Voluntary excess
Where an insured party volunteers for an excess (that’s, a specified sum which the insured must bear before the insurers pay their liability) and receives the benefit of a reduced premium, IPT is due only on the amount of the reduced premium. The same guidelines apply where an excess is compulsory, for example, as a mechanism to reduce small claims.
4.5 Professional indemnity funds
Some professional associations may offer cover to members without using a contract of insurance (see paragraph 3.3). This may be because payments into a fund (and out of it in respect of claims) are made on a statutory basis rather than a contractual basis. Where there’s no contract of insurance in place there’s no IPT due on payments into any collective fund.
4.6 Financial instruments
Contracts such as futures, contracts for difference and swaps, which are based on movements in the value of underlying commodities such as money or securities, are used to manage risk, and to this extent they’re some similarity with a contract of insurance. However, there’re major differences between financial instruments and contracts of insurance (see paragraph 3.3 on what constitutes a contract of insurance), which include:
- financial instruments (unlike insurance contracts which are contracts of indemnity) provide an opportunity for profit or loss
- it isn’t necessary for the person buying the contract to have an insurable interest
- there’s no requirement for the buyer to disclose all material facts to the seller
Payments relating to financial instruments aren’t, therefore, liable to IPT.
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.
4.8 Mutual insurers
The term mutual insurance is one term which may be applied to any collective insurance where the total premiums and the investment income derived from the premiums are put into a fund, which is the property of the contributors. Reinsurance costs, management expenses and members’ claims are paid out of the fund.
Where the members of any mutual insurance group are, in effect, both the insured and the insurer, this doesn’t preclude there being a contract of insurance in place and the premiums being liable to IPT in the normal way.
4.8.1 Protection and Indemnity (P and I) clubs
One type of mutual insurance is offered by P and I clubs. The cover provided is primarily protection and indemnity in relation to commercial ships. Although some of the business underwritten by such insurers will be exempt (see paragraph 5.5), not all business underwritten by P and I clubs is exempt and clubs may therefore be required to register and account for IPT (unless the de minimis rules described in paragraph 13.8 apply).
4.9 Service contracts
Under a service agreement a supplier will normally undertake to provide a certain level of service over a specified period in return for an agreed payment. The types and levels of services vary but may, include, for example:
- regular inspection and maintenance of a central heating system
- response to breakdown calls, credit for repair work and the loan of replacement cars to customers by car dealers
Payment may be in a lump sum or at regular intervals and such sums aren’t subject to IPT because the services aren’t supplied under contracts of insurance. However, if cover is obtained from an insurer against any shortfall in the repair fund, there’s a contract of insurance between the insurer and the supplier (as the insured) and this is liable to IPT. If, unusually, the service agreement itself includes a taxable contract of insurance, this element will be liable to IPT.
When a seller or manufacturer of goods gives an undertaking to the effect that, provided the goods are used for the purpose intended, they’ll continue to work for a certain period of time and, if they cease to work, the provider of the goods will repair or replace the goods without charge to the purchaser, this may be referred to as a warranty. This type of warranty isn’t insurance. It’s, rather, an undertaking to the effect that the vendor is selling goods, which are in good working order, and payments received in connection with this undertaking aren’t liable to IPT. However, if the retailer or manufacturer takes out insurance cover against the risk of having to replace the goods within the warranty period, the related premium is taxable.
4.11 Extended warranties and mechanical breakdown insurance
An extended warranty may often take the form of a mechanical breakdown insurance contract, under which the insurer, in return for an agreed premium, takes on a risk to the policyholder that (for example) the insured item will unexpectedly break or prematurely wear out. In this case the insurer undertakes to pay for the repair or replacement of the insured item in such an event and the contract of insurance is liable to IPT. Where provided by a person described in sections 6 or 7 then IPT will be due at the higher rate.
Under a contract of guarantee, the guarantor promises the creditor to be responsible for the performance of a third party in paying their debts to the creditor or performing his obligations. Guarantee fees aren’t liable to IPT. Although there’re some similarities between an insurance contract (see paragraph 3.3) and a guarantee, contracts of guarantee cannot be contracts of insurance.
Indicators of a contract of guarantee include:
- 3 parties to the contract (guarantor, creditor, debtor, although they may not necessarily be called this) - the liability of the guarantor is a secondary liability not, as in the case of an insurer, a primary liability
- the absence of a legal requirement for there to be an insurable interest (for example, the debtor could enter into a binding guarantee even though the only person with an interest in the obligation being met is the creditor)
- a counter indemnity which the debtor may give to the guarantor and which the guarantor can invoke should the debtor default (although the absence of such an undertaking doesn’t necessarily mean that the contract is one of insurance)
- the contract remains binding on the guarantor notwithstanding a lower standard of disclosure than ‘utmost good faith’ - the party entering into the guarantee must answer fully and completely any questions put but needn’t, subject to that, volunteer information which might be material to the guarantor’s decision to enter into the contract
- a guarantor has no automatic right to declare a contract void for breach of contractual warranty although this might be possible if there’s a material and fundamental breach of the contract
- the fee (if any) charged by a guarantor is based on some assessment of the risks involved (normally on the assumption that the guarantor can recover from the debtor if there’s a default) but, unlike insurance, there’s no pooling of premiums in relation to a pooling of corresponding risks
4.13 Contracts liable to VAT
Although certain of the contracts mentioned above aren’t liable to IPT, some of the contracts in section 4 will be liable to VAT.
5.1 What contracts of insurance are exempt
All contracts of insurance are liable to IPT at the standard or higher rate unless specifically exempted. Contracts of insurance are exempt when they relate solely to one or more of the risks described in the relevant paragraphs of this section. Where a contract covers both exempt and non-exempt risks, it’ll be necessary to apportion the premium (see section 13).
The following risks are exempt from IPT:
- risks outside the UK (paragraph 5.2)
- reinsurance (paragraph 5.3)
- long term business (paragraph 5.4)
- commercial ships (paragraph 5.5)
- contracts relating to the Channel Tunnel (paragraph 5.6)
- lifeboats and lifeboat equipment (paragraph 5.7)
- commercial aircraft (paragraph 5.8)
- international railway rolling stock (paragraph 5.9)
- goods in foreign or international transit (paragraph 5.10)
- export finance related insurance (paragraph 5.11)
- contracts relating to motor vehicles for use by disabled persons (Motability) (paragraph 5.12)
- spacecraft (paragraph 5.13)
5.1.1 Classes of insurance
Some exempt insurance contracts are defined by reference to classes of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO).
Insurance classes - Contracts of general insurance (Part I of Schedule 1 to the RAO)
|4||Railway rolling stock|
|7||Goods in transit|
|8||Fire and natural forces|
|9||Damage to property|
|10||Motor vehicle liability|
|12||Liability of ships|
|16||Miscellaneous financial loss|
Insurance classes - Contracts of long term insurance (Part II of Schedule 1 to the RAO)
|I||Life and annuity|
|II||Marriage and birth|
|III||Linked long term|
|VIII||Pension fund management|
|X||Collective insurance, social insurance|
5.2 Risks outside the UK
Contracts which cover a risk outside the UK are exempt. For IPT purposes the UK:
- consists of Great Britain, Northern Ireland and waters within 12 nautical miles of their coastline
- excludes the Isle of Man and the Channel Islands
The rules for determining where a risk is located are set out in the sub-paragraphs below.
Where a contract covers risks situated both inside and outside the UK, the premium should be apportioned between that element which relates to taxable risks and that which relates to exempt risks (see paragraph 13.1).
5.2.1 Location of risk rules
The rules for determining whether a risk is located in the UK for IPT purposes broadly follow those set out in Article 2 (d) of the EC Second Non-Life Insurance Directive, which are reflected in UK law in the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001 (SI 2001/2635).
A risk is located in the UK if the insurance:
(a) relates to buildings and/or their contents, and the building is located in the UK (whether or not the contents are covered by the same policy as the one which covers the building)
(b) relates to any vehicle of any type which is registered in the UK (‘vehicle’ includes motor vehicles, ships, yachts and aircraft)
(c) is a policy of up to 4 months duration which covers a travel or holiday risk when the policy is taken out in the UK
(d) is of a type not covered in (a) to (c) above and the policy holder is either:
- an individual habitually residing (see paragraph 5.2.6) in the UK at the date when the contract is entered into
- a business, and the establishment (see paragraph 5.2.5) to which the policy relates is in the UK
5.2.2 Unregistered vehicles
A vehicle not registered anywhere - for example a privately owned yacht - may be a risk in the UK under (d) above. The location of the risk will be determined by the usual place of residence of the policyholder.
5.2.3 Embassies and international organisations
Buildings and contents insurance relating to embassies is treated as relating to a risk located outside the UK, so the related premiums are exempt.
However, other insurance, such as personal accident cover taken out by an embassy employee, is liable to IPT (if the employee is habitually resident in the UK).
Some international organisations are eligible for relief (not exemption) from indirect taxes (including IPT) on goods and services supplied to them. These reliefs are administered by the Protocol Department of the Foreign and Commonwealth Office.
5.2.4 Definition of ‘building’
In addition to the normal meaning of building, an oil rig or pipeline fixed to the seabed is also a building for the purposes of IPT, as are similar structures fixed to land, bridges and fixed cranes.
5.2.5 Definition of ‘establishment’
An establishment for the purposes of the location of risk rules includes:
- any presence or undertaking, even if it doesn’t take the form of a branch or agency, but consists of an office managed by the undertaking’s own staff, or by a person who’s independent but who’s the authority to act for the undertaking as an agency would
- selling agents, representative offices, factories, workshops, mines, oil and gas wells, and quarries
- subsidiaries and sub subsidiaries, provided that the policy covers their risks
In all cases, it’ll be necessary for the insurer to demonstrate that there’s a clearly identifiable risk attaching to an overseas establishment for exemption or apportionment to be applicable (see the example in paragraph 13.3).
5.2.6 Travel insurance
Travel insurance policies of duration of 4 months or less which are taken out by a person in the UK by post, phone or the internet are regarded as taken out in the UK, regardless of where the insurer or broker is based. Holiday or travel insurance for periods greater than 4 months falls within 5.2.1(d) above and is therefore taxable where the traveller is habitually resident in the UK at the time the contract is entered into.
Examples of travel policies, demonstrating HMRCs interpretation of ‘habitually residing’ are given below for guidance. Clearly cases will vary and some may require individual consideration. In practice, and in most cases, insurers can be led by the current home address provided by the insured on the proposal form. If the insured person gives a UK address then it’d be reasonable to assume that the policy is subject to UK IPT. If the insured gives an overseas address, or otherwise indicates on the proposal form that he isn’t currently habitually residing in the UK, then the insurer should make the necessary enquiries and obtain and retain supporting information if the premium is considered to be exempt from UK IPT. The insurer should also bear in mind that, if the insured is currently habitually resident in a non-UK country, there may well be a liability to account for insurance tax in that country:
- a Japanese student studying in the UK for the past 2 years takes a year out from study to travel the world. He takes out a travel policy a week before his departure covering risks against personal injury, illness and expenses of repatriation. Because of the duration of his stay, he’s habitually resident here at the date the contract is entered into. UK IPT is therefore applicable to the premium
- an American company sends its employee to work in their UK office for a year. The employee takes out a travel policy in the US to cover personal effects and personal injury. She’s been habitually resident in the US up to the date of her departure and therefore the location of risk is in the States. If she stayed in the UK for an extra year and took out a new policy (for either travel or other personal risks), because she’d’ve been habitually resident in the UK for the past year, UK IPT is due on the premium
- a retired couple have residences in the UK and Spain. Each year they spend winter at their villa in Spain and take out a travel policy to cover against the usual travel risks (flight delay, loss of baggage, medical expenses). Because they regularly use homes in 2 different countries they’re habitually resident in whichever residence they’re living in at the time they take out the insurance
- an Australian backpacker arrives in the UK and immediately takes out travel insurance to cover his forthcoming trips around Europe. At the time of taking out the policy he can be regarded as habitually residing in Australia and wouldn’t be subject to UK IPT. A year later, having spent the last 8 months living in the UK, the backpacker takes out another travel policy. At the time of taking out the policy he’s considered to be habitually resident in the UK and the policy would be subject to UK IPT
A reinsurance contract under which an original insurer is indemnified by a reinsurer for a risk undertaken by the original insurer is exempt. The exemption applies to all true reinsurance whether it’s written on a facultative or treaty basis, and whether it’s proportional or non-proportional. This exemption doesn’t apply to contractual situations such as:
- arrangements under which obligations and rights (to future receivables) attaching to original insurance business are transferred from one insurer to another (commonly known as, ‘portfolio transfer’)
- contracts of partnership or agency between insurers
- direct contracts of insurance taken out by a party, which has chosen to self-insure up to a certain level, and which uses the insurance contract to cover itself for the remainder of the risk
5.4 Long term business
A contract of long term insurance of one or more of classes I to VII (see paragraph 5.1.1) is exempt, except for medical insurance (see paragraph 5.4.1). Some examples of ‘long term’ insurance are life insurance, mortgage or pension linked insurance and permanent health insurance.
Where they were taken out before the announcement of IPT, ‘long term’ contracts which include an element of general insurance are also exempt if, for regulatory purposes, they’re regarded as wholly ‘long term’ insurance. An example of such a situation is a life insurance contract with a small element of general accident and sickness included within the policy. Please note that this aspect of the exemption is time limited in that it applies only to mixed contracts taken out before 1 December 1993. For such contracts taken out after that date insurers will be required to apportion the contract between the taxable and exempt elements although the de minimis rules may apply (see paragraph 13.8).
5.4.1 Medical insurance
Premiums received, or treated as received, on or after 1 October 1997 for medical insurance written under a long-term contract aren’t exempt from IPT. The expression ‘medical insurance’ is defined in the legislation and essentially covers those contracts providing benefits more commonly found under an annual, private medical insurance or hospital cash plan type contract.
To the extent that a contract provides medical insurance, it won’t qualify for the otherwise universal IPT exemption for long term insurance and will therefore be liable to IPT at the standard rate. Insurance contracts providing critical illness cover (for example, a lump sum payment on diagnosis of a serious medical condition), permanent health insurance (such as income replacement) and cover which meets the cost of continuing care for the elderly or chronically sick - all of which are long term policies - are exempt from IPT.
5.4.2 Permanent Health Insurance (PHI)
PHI as defined in class IV (see paragraph 5.1.1) is exempt. PHI contracts must be written for a minimum period of at least 5 years (or until the normal retirement age of the policyholder) and cannot be terminated by the insurer (except in special circumstances mentioned in the contract).
These characteristics clearly distinguish such contracts from other health insurance which falls within classes 1 and 2 (see paragraph 5.1.1) and which is liable to IPT. PHI is often described as income protection insurance because it provides a replacement income when someone’s unable to work through sickness or disability.
5.4.3 Maternity benefits
Under Schedule 1 to the RAO, contracts of insurance providing benefits related to marriage and birth are regarded as (class II) contracts of long term insurance if they’re expressed to be in effect for a period of more than one year.
For IPT purposes this time limit is regarded as met, and the contract is exempt, only if the insurer:
- has no right to vary the range and rate of benefits
- is obliged under the contract to give at least 12 months notice before withdrawing the maternity benefit
5.5 Commercial ships
A contract of insurance that relates to a commercial ship and is a contract that constitutes business of one or more of the specified classes 1, 6 and 12 (that’s, accident, hull and cargo and third party risks - see paragraph 5.1.1) is exempt.
5.5.1 Definition of ‘commercial ship’
A commercial ship is one which is of a gross tonnage of 15 tons or more and not designed or adapted for use for recreation or pleasure. The gross tonnage of a ship is that determined under the Merchant Shipping Acts. The phrase ‘designed or adapted for use for recreation or pleasure’ means that policies covering vessels which have the nature or characteristics of recreational or pleasure craft aren’t exempt. However, a policy covering a ship, which is of a gross tonnage of 15 tons or more and which is adapted for the business of recreation or pleasure, such as a cruise ship, does fall within the exemption. Similarly, insurance relating to charter vessels over 15 tons may be treated as exempt, even if the charter craft are hired out for recreational purposes.
The term ‘ship’ includes light vessels, fire floats, dredgers, barges or lighters, mobile floating docks or cranes and offshore oil or gas installations used in the underwater exploitation or exploration of oil and gas resources, which are designed to be moved from place to place. Fixed installations that are normally embedded in the sea bed aren’t ships even though they may be transported to a site as a floating structure. For IPT purposes, these are regarded as buildings.
Insurance contracts which cover the machinery, tackle, furniture or equipment of a commercial ship, are exempt from IPT. Policies relating to associated liabilities (such as an employer’s liability policy), which don’t fall within classes 1, 6 and 12 (that’s, accident, hull and cargo and third party risks - see paragraph 5.1.1) and which attach to a commercial ship that’s registered abroad will be exempt because the risk is located outside the UK (see paragraph 5.2).
5.5.2 Ship construction
The exemption doesn’t apply to contracts of insurance that cover the construction of any ship. These aren’t exempt from IPT. Construction is deemed to end on the launch date of a ship (that’s, when the ship first takes buoyancy in the water).
A contract of insurance that relates to a hovercraft is exempt from IPT, unless the hovercraft is designed or adapted for recreation or pleasure. Where a hovercraft is registered outside the UK, the risk isn’t deemed to be in the UK - see paragraph 5.2.
5.6 Contracts relating to the Channel Tunnel
The exemption applies only to insurance directly linked to the operation of the Channel Tunnel shuttle and rail service itself. The law is very specifically framed and is intended only to give parity of treatment with the cross-channel ferry operators (see paragraph 5.5). The exemption, like that for the marine sector, doesn’t apply to cover for risks such as business interruption.
5.7 Lifeboats and lifeboat equipment
A contract of insurance that relates to a lifeboat or a lifeboat and lifeboat equipment and which is a contract which constitutes business of one or more of classes 1, 6 and 12 (that’s, accident, hull and cargo and third party risks - see paragraph 5.1.1) is exempt.
5.7.1 Definition of ‘lifeboat’ and ‘lifeboat equipment’
A lifeboat is a vessel used, or to be used, solely for rescue or assistance at sea. ‘Lifeboat’ includes conventional lifeboats and other vessels used solely in connection with lifesaving activities at sea. Lifeboat equipment is defined as anything used, or to be used, solely in connection with a lifeboat and it includes carriage equipment, tractors, winches and hauling equipment used solely for the launching and recovery of lifeboats. ‘Lifeboat equipment’ doesn’t include boathouses and slipways.
The exemption doesn’t extend to policies covering rescue craft to be used on inland waterways, lakes and reservoirs. Policies which relate to the construction of lifeboats are also not exempt from IPT (construction is deemed to end at the launch date - see paragraph 5.5.2).
The exemption does, however, extend to new, completed lifeboats not yet used but to be used for rescue at sea and to policies relating to lifeboats used for training personnel in rescue at sea (but not to vessels which aren’t lifeboats, even though they may be used to train personnel in lifesaving skills).
5.8 Commercial aircraft
A contract of insurance that relates to a commercial aircraft and is a contract that constitutes business of one or more of classes 1, 5 and 11 (that’s, accident, hull and cargo, and third party risks - see paragraph 5.1.1) is exempt. Policies relating to associated liabilities, which don’t fall within classes 1, 5 and 11, which attach to a commercial aircraft registered abroad may also be treated as exempt.
5.8.1 Definition of ‘commercial aircraft’
A commercial aircraft is one which weighs 8,000kg or more and which isn’t designed or adapted for use for recreation or pleasure. This weight limit refers to the authorised maximum take-off weight. For civil aircraft this is specified in the certificate of airworthiness in force for the aircraft.
Contracts of insurance that aren’t exempt include those that relate to any type of aircraft that’s less than 8,000kg or to any aircraft (irrespective of its weight) that’s designed or adapted for use for recreation or pleasure. IPT is also due on contracts of insurance relating to the construction of any aircraft.
5.9 International railway rolling stock
A contract of insurance that relates to foreign or international railway rolling stock and which constitutes business of one or more of classes 4 and 13 (that’s loss of or damage to railway rolling stock and third party liability - see paragraph 5.1.1) is exempt. Foreign or international railway rolling stock is railway rolling stock which is used principally for journeys taking place wholly or partly outside the UK.
The ‘railway rolling stock’ included in the exemption is the wheeled vehicles (including locomotives, passenger coaches, dining cars and other goods-carrying carriages) that are used on a railway journey between 2 places outside the UK or between a place in the UK and a place abroad in either direction (see paragraph 5.2 for a definition of the UK).
5.10 Goods in foreign or international transit
A contract of insurance that relates to loss of or damage to goods in foreign or international transit is exempt from IPT. To qualify for the exemption, a contract must be entered into by an insured in the course of a business carried on by him or her. The exemption doesn’t extend to the removal of goods to any destination if the insured is acting in a private capacity. Insurance contracts that relate to containers are also exempt. Non-motorised trailers are treated as containers.
Goods are considered to be in foreign or international transit where their carriage begins or ends outside the UK. Where a cargo insurance contract relates both to cover for some foreign or international movements of some goods (as defined in the preceding sentence) and to cover for other goods which are in transit only within the UK (that’s, where the carriage begins or ends in the UK), the element of the premium which relates to goods which are in transit only within the UK is liable to IPT.
5.10.1 Free on Board (FOB) insurance
Usually FOB insurances relate to movements of goods whilst they’re in transit in the UK. Where such FOB cover is taken out in respect of loss of or damage to goods which are going for ultimate export from the UK, then such insurance is exempt from IPT, even in cases where a policy only relates to the period of time during which the goods are in the UK.
FOB policies may include seller’s interest cover. This insures against the possibility that the intended purchaser may refuse to buy the goods on delivery (whether due to damage or otherwise). To the extent that this cover relates to loss of or damage to the goods (either on the outward, or the return journey if the goods have to be brought back to the UK) it’s exempt from IPT. If the seller’s interest cover also offers insurance against extra transport costs or loss of profits, then this isn’t exempt from IPT.
5.10.2 Storage cover
Storage cover may be provided as part of an export cargo cover to insure against losses during any period for which goods are stored in the UK in the period after their sale but before their transportation begins. Where such cover is part of an export cover for commercial goods in international transit, the entire premium is exempt from IPT.
5.10.3 Import cover
Import or transhipment cargo cover generally includes cover against loss of or damage to goods during unavoidable transport delays during transit to or through the UK. This is usually limited to 60 days and, if this is the case, the entire premium is exempt from IPT as part of the international transit cover.
Import cover may also include stock throughput cover, which protects against losses during storage in the UK by the importer pending distribution and onward sale. Where the stock throughput cover is limited to 60 days average storage time for the goods in question, it’s regarded as part of the international transit cover and is also exempt from IPT.
Where a buyer’s interest clause is part of an import cargo policy, the element of any premium which relates to loss of or damage to goods in international transit may be treated as exempt. Usually the buyer would ask the seller to claim under the seller’s FOB policy for damage if that damage occurred during the period of the seller’s cover, and the buyer’s interest covers the purchaser if the seller won’t do this, or the seller’s insurer refuses to pay.
5.10.4 Bailee’s liability
Bailee’s liability insurance covers, amongst other things, loss of or damage to goods whilst they’re in the bailee’s care. Where such cover relates to loss of or damage to goods which are in international transit, the related premium may be treated as exempt from IPT, as may that part of the premium which relates to loss of or damage to these goods (caused by a fault of the bailee, such as faulty packing) once they’ve left the bailee’s premises.
5.10.5 Road hauliers
Similarly, exemption also applies for road hauliers’ cover where that cover is for loss of or damage to goods in foreign or international transit, even where the particular haulier is only providing carriage for the UK leg of the journey. It applies whether the insurance is taken out by a contractual carrier (who may not actually be involved in the physical transportation) or an actual carrier (who may be subcontracted to the contractual carrier).
If cover under the policy relates to risks other than loss of or damage to goods, such as liability for delay in delivery or liability for not exercising reasonable care, then that element of the policy is taxable, even if the goods involved are in international transit.
It may be difficult for insurers to separately identify any taxable element in each policy they issue for road hauliers’ cover. In such cases, insurers should agree with us an estimated, across the board apportionment for all premiums written relating to that line of business.
5.10.6 Removal companies
Where an insurer offers block policies to a removal company and the remover acts as an agent of the insurer in arranging individual insurance policies for the customers, the remover will be required to make sure (as agent of the insurer) that exemption is limited to policies covering the movement of goods in foreign or international transit and that the insured is acting in the course of his or her business (see paragraph 5.10).
5.11 Export finance related insurance
Export finance related insurance is exempt. The exemption covers:
- credit extended by a UK seller of goods or services to a non-UK buyer
- insurance contracts relating to exchange rate losses suffered by a UK exporter
- insurance supplied to a business making a loan or providing a similar financial facility to an overseas purchaser in order to fulfil a contract to purchase goods or services
In order for this exemption to apply, there must be a tie-in to an underlying movement or export of specific goods or an export of specific services. Exemption doesn’t apply, for example, to an insurance contract which covers risks attaching to a speculative investment that may or may not result in a movement of goods.
5.11.1 Export credit insurance
Where an insurance contract relates to export credit, then, to qualify for exemption it must cover a person who:
- is in business in the UK, and is supplying goods, services or both to an overseas customer
- has a contract to sell goods to a UK person who, in turn, is to export those goods or who’s to incorporate those goods in other goods which he or she’s under contract to export
- has a contract to supply valuation or testing services to, or to do other work on goods for, a person who’s under contract to export those goods
- is under contract to supply services to a UK business so that the UK business can comply with a contract to supply services to an overseas customer
5.11.2 Exchange rate losses
Where an insurance contract covers a person for exchange rate losses, it’s exempt if it relates to the loss made by an insured party when:
- that loss is caused by fluctuations in the exchange rate
- this affects the payment that the insured would receive in relation to a supply of goods or services made to an overseas customer
The exemption applies whether the insured party has entered into a contract to supply goods or services, or has tendered for the contract, or intends to tender.
5.11.3 Loans to overseas customers
An insurance contract is exempt if it’s provided to a party, such as a bank, which has provided a loan or other financial facility to an overseas customer so that the overseas customer might pay for a supply of goods or services, which he or she’s contracted to purchase.
5.12 Motor vehicles used by disabled persons (Motability)
Block insurance policies held by Motability, under which all those disabled drivers who lease their vehicles under the Motability scheme are insured, are exempt. This exemption, generally doesn’t extend to disabled drivers.
A contract of insurance that relates to the operation of a spacecraft and is a contract that falls with one or more of specified general insurance classes 1, 7, 8, 9 and 13 (that’s, accident, goods in transit, fire and natural forces, damage to property and general liability - see paragraph 5.1.1) is exempt. This exemption was introduced on 1 December 2014 and applies to premiums with tax points falling on or after that date. Premiums with earlier tax points are subject to tax in the normal way.
5.13.1 Definition of spacecraft and operation of a spacecraft
A spacecraft is a man-made object intended to travel into space (manned or otherwise) and includes, for example, satellites, cubesats, rockets and probes. Exemption applies to both the craft itself and its launch vehicle, including all the component parts.
The exemption applies only to risks relating to the operation of a spacecraft during its launch, flight, orbit or re-entry, that’s, loss arising from the malfunction of the spacecraft during or damage caused to or by the spacecraft or any of its cargo.
This includes business interruption cover taken out by a spacecraft owner or operator for loss of business revenue arising from the operation of the spacecraft after launch (but not for any third party business interruption liability).
It also includes cover relating to third parties liabilities arising from the operation of a spacecraft. For example, if a spacecraft collides with another causing damage or injury to either persons or property. Risks relating to any other third party liabilities aren’t included in this exemption. For example, liability for the financial losses of companies who use the functionality of a satellite (such as, to provide broadcasting services).
5.13.2 Spacecraft construction
This exemption applies only to cover for risks arising during and after launch and doesn’t therefore apply to any risks relating to the construction of the spacecraft. Where, however, a policy relates to the transportation of a spacecraft from its place of construction in the UK to a non-UK launch site, from a place outside the UK to a launch site within the UK or from a construction site outside the UK to a launch site also outside the UK, cover relating to loss of or damage to the spacecraft will be exempt under the exemption for contracts relating to goods in foreign or international transit (see paragraph 5.10).
6. Higher rate - suppliers of motor vehicles
6.1 Higher rate IPT
The general provisions relating to the higher rate of IPT are described at paragraph 2.4.
6.2 Motor vehicles
The higher rate of IPT will apply to an insurance premium relating to a motor car or motor cycle if the contract is arranged through or supplied by:
- a supplier of motor cars or motor cycles (that’s, anyone who supplies them to their customers, not just manufacturers and dealers; in particular this includes car hire companies)
- a person connected to a supplier of motor cars or motor cycles, where the insurance relates to a motor vehicle provided by the connected supplier (see paragraph 6.10 for the meaning of ‘connected’)
- a person who pays, to a person described in the first 2 bullet points above, a fee relating to an insurance contract covering the motor vehicle
The higher rate will apply to insurance sold by such persons irrespective of whether any goods or services are actually purchased. However, the higher rate doesn’t apply to ‘ordinary’ motor insurance (see paragraph 6.8), and in relation to discounted insurance, the higher rate only applies to the amount paid by the insured (see paragraph 6.5). See also the ‘Statement of Practice’ at paragraph 8.1).
6.3 Definition of a ‘motor car’ or ‘motor cycle’
The terms motor car and motor cycle are as defined in section 185(1) of the Road Traffic Act 1988 (the expression motor car includes small vans).
6.4 Whether the higher rate apply to insurance supplied free of charge
The higher rate of IPT won’t apply to insurance which is provided to the insured free of charge. For example, if you’re a supplier of motor vehicles and you provide insurance free as a part of the package with the cars you sell, the insurance premium that you pass to the insurer or intermediary and which is paid for out of your vatable income is liable to IPT at the standard rate.
Where insurance is offered free to the purchaser of a motor vehicle, but an additional premium is charged to the purchaser for an add-on (for example, an extra year), the higher rate of IPT will apply only to the premium relating to the add-on.
6.5 Whether the higher rate apply to discounted insurance
Some suppliers of motor vehicles offer motor insurance to their customers at a price that’s less than the amount charged to the supplier by the insurer or scheme administrator. In such circumstances, the higher rate of IPT applies, only to the amount of the premium which is paid by the customer. The part of the premium which is subsidised by the supplier of motor vehicles will be liable to IPT at the standard rate.
6.6 Businesses regarded as suppliers of motor vehicles
The following aren’t regarded as suppliers of motor vehicles:
- finance houses, even though they may take title to the vehicle
- businesses which are simply disposing of motor vehicles which they’ve used as assets of their business (for example, vehicles which have been used by the sales force)
- insurers who supply a car or motor cycle to which the insurer takes title as a result of a claim under a policy, or because the insurer provides a policyholder with a new vehicle instead of financial indemnification
However, you’re a ‘supplier of motor cars or motor cycles’ when you make any other supply including the supply of a motor vehicle:
- on hire purchase
- on lease or hire
- by an auctioneer
6.7 How the higher rate applies to car hire or rental
The higher rate of IPT applies to all motor insurance relating to hired motor vehicles where that insurance is arranged or provided by a car hire business, a person connected to such a business or a person passing a fee or commission relating to a motor insurance contract to such a business.
A car hire business may treat the insurance of its vehicles as an overhead expense and recover the cost in the overall charge made to the customer. In such cases the charge made to the customer is subject to VAT (not IPT) because it’s part of the consideration for hiring the car. The insurance premium paid by the hire company to the insurer is subject to IPT at the standard rate.
6.8 Whether the higher rate apply to ‘ordinary’ motor insurance
Sales of ordinary motor insurance by motor dealers aren’t subject to the higher rate.
Where ordinary motor insurance contains a minor and ancillary element of mechanical breakdown insurance or roadside assistance insurance, the premium relating to the mechanical breakdown or roadside assistance element won’t be subject to the higher rate.
The higher rate does however apply to ordinary motor insurance arranged by car hire or rental businesses.
6.9 Whether the higher rate apply to credit protection insurance
The higher rate of IPT doesn’t apply to credit protection insurance, including ‘gap’ and value guaranteed insurance, taken out to cover any shortfall from the proceeds of the comprehensive motor policy should a vehicle be written off, where any payout in the event of a claim can only be used to off-set any liability under a financing arrangement. This is because the insurance is taken out primarily in connection with the finance rather than the vehicle.
6.10 Connected persons
The definition of ‘connected person’ is that used in section 993 of the Income Tax Act 2007 and section 1122 of the Corporation Tax Act 2010 - essentially:
- relatives are connected with one another
- trustees of settlements are connected with settlors
- business partners are connected with one another
- companies are connected with people who control them
- companies under the control of the same persons are connected with one another
Where there’re genuine difficulties in identifying connected sales, the higher rate will only apply where there’s a deliberate or systematic attempt by:
- a supplier of motor vehicles to sell insurance to purchasers of its vehicles using a connected insurer or broker
- an insurer or broker to sell insurance relating to sales of motor vehicles by a connected supplier of motor vehicles
This approach is reflected in a Statement of Practice issued by HMRC which is reproduced at paragraph 8.1. The Statement of Practice may be changed or disapplied if used for the purposes of avoidance of tax.
6.11.1 Motor premium liable to the higher rate
A motor dealer has an associated insurance agent. Insurance is promoted as an optional add-on with every vehicle sold, and customers are encouraged to take out policies with the dealer’s associated company. The majority of the agent’s business is made up of such sales. This motor insurance arranged by the insurance agent would be regarded as ‘connected’ to the sale of the motor vehicles by the associated dealer and would be liable to the higher rate.
6.11.2 Motor premium not liable to the higher rate
A motor dealer has an associated insurance agent, but this agent operates completely independently and from a different site. No attempt is made by the motor dealer to promote the insurance arranged by this agent, and the car dealer’s customers buy their insurance from a range of outlets. The insurance agent is under no obligation to ask customers where they purchased the vehicle that they’re insuring, in order to identify those purchased from the associated dealer. The motor insurance arranged by the insurance agent isn’t liable to the higher rate of IPT even if, co-incidentally, it should occasionally be sold to customers of the associated motor dealer.
6.12 Whether the higher rate apply to roadside assistance insurance
Roadside assistance insurance is insurance relating to a motor vehicle. So it’s liable to the selective higher rate of IPT (but also see paragraph 9.9):
- when it’s arranged or provided by a person listed at paragraph 6.2 above
- unless it forms a minor part of an ‘ordinary’ motor insurance contract and falls within the concession outlined in paragraph 6.8
6.13 Whether the higher rate apply to guarantees
Where a supplier of motor vehicles sells a guarantee to the purchaser of a vehicle, the supplier will often take out insurance for indemnity against financial loss. The premium relating to such insurance is liable to IPT at the standard rate.
6.14 Whether the higher rate apply to floorspan insurance
If a supplier of motor vehicles takes out floorspan insurance to protect against damage to vehicles held as stock, the insurance (paid for out of the supplier’s vatable income) is liable to IPT at the standard rate even if taken out with a ‘connected’ insurer.
6.15 Whether the higher rate apply to ‘card in the box’ schemes
Certain manufacturers’ and dealers’ schemes use the so-called ‘card in the box’ method to sell motor insurance. This operates by placing a leaflet offering an insurance quote in the car when it’s sold. If the purchaser takes out a policy a commission is paid to the manufacturer or seller of the car. This commission would normally be payment for a VAT exempt supply of arranging insurance and the insurance premium would be liable to IPT at the higher rate. If, however, the manufacturer or dealer is offering a supply of advertising services in return for a fee, which is liable to VAT at the standard rate, the insurance premiums relating to the insurance arranged by them may be treated as liable to IPT at the standard rate.
7. Higher rate - suppliers of domestic appliances
7.1 Higher rate IPT
The general provisions relating to the higher rate of IPT are described at paragraph 2.4.
7.2 Domestic appliances
The higher rate of IPT will apply to an insurance premium relating to certain electrical or mechanical domestic appliances if the contract is arranged through or supplied by one of the people described below:
- a supplier of electrical or mechanical domestic appliances
- a person connected to a supplier of electrical or mechanical domestic appliances, where the insurance relates to a domestic appliance provided by the connected supplier (see paragraph 7.8 for the meaning of ‘connected’)
- a person who pays, to a person described in the first 2 bullet points above, a fee relating to an insurance contract covering the domestic appliance
The higher rate will apply to insurance sold by such persons irrespective of whether any goods or services are actually purchased. However, in relation to discounted insurance the higher rate applies to the amount paid by the insured (see paragraph 7.5 and the ‘Statement of Practice’ at paragraph 8.1).
The higher rate of IPT doesn’t apply to credit protection insurance, including ‘gap’ and value guaranteed insurance, taken out to cover any shortfall from the proceeds of the policy, where any payout in the event of a claim can only be used to off-set any liability under a financing arrangements. This is because the insurance is taken out primarily in connection with the finance rather than the domestic appliance.
The higher rate doesn’t apply to home contents insurance.
7.3 Definition of domestic appliances
For the purposes of the higher rate of IPT an electrical or mechanical domestic appliance is any such appliance of a kind which:
- is ordinarily used in or about the home
- which is ordinarily owned by private individuals and used by them for the purposes of leisure, amusement or entertainment
‘Ordinarily’ means the state of affairs that’s normally, commonly or usually so.
Taking personal computers as an example, it wouldn’t be extraordinary to find such an item in the home. Therefore these fall to be treated as domestic appliances for the purposes of the selective higher rate of IPT. So although most businesses use computers, such appliances are also ordinarily used in the home. Paragraph 7.13 gives a list of those goods, which are considered to be relevant electrical or mechanical domestic appliances (referred to simply as ‘domestic appliances’ for the remainder of this notice) for the purposes of the higher rate. Although the list isn’t intended to be comprehensive, it’s indicative of the items covered.
7.4 Whether the higher rate apply to insurance supplied free of charge
The higher rate of IPT won’t apply to insurance which is provided to the insured free of charge. For example, if you’re a supplier of domestic appliances and you provide insurance free as part of a package with the appliances you sell, the insurance premium that you pass to the insurer or intermediary and which is paid for out of your VAT able income is liable to IPT at the standard rate. Where insurance is offered free to the purchaser of an appliance and an additional premium is charged to the purchaser for an add-on (for example, an extra year) the higher rate of IPT will apply only to the premium relating to the add-on.
7.5 Whether the higher rate apply to discounted insurance
If a supplier of domestic appliances offers insurance relating to those appliances to customers at a price that’s less than the amount charged to the supplier by the insurer, then the higher rate of IPT will apply only to the amount of the premium which is paid by the customer. The part of the premium, which is subsidised by the supplier of domestic appliances, will be liable to IPT at the standard rate.
7.6 Businesses not regarded as suppliers of domestic appliances
The following aren’t regarded as suppliers of domestic appliances:
- finance houses, even though they may take title to the goods
- businesses which are simply disposing of appliances (such as computers) which they’ve used as assets of their business
- insurers who supply an appliance to which the insurer has taken title as a result of a claim under a policy, or because the insurer provides the policyholder with a new appliance instead of financial indemnification
However, the term ‘supplier of domestic appliances’ includes all other forms of supply including goods on hire.
7.7 What are connected persons
The definition of ‘connected person’ for suppliers of domestic appliances is the same as in paragraph 6.10 for suppliers of motor vehicles.
7.8 Whether the higher rate apply to guarantees
Where a supplier of domestic appliances sells a guarantee to the purchaser of an appliance, the supplier will often take out insurance to indemnify himself or herself against financial loss. The premium relating to such insurance is liable to IPT at the standard rate.
7.9 Whether the higher rate apply to insurance of stock
If a supplier of domestic appliances takes out insurance to protect against damage to or theft of domestic appliances held as stock, the insurance (paid for out of the supplier’s VAT able income) is liable to IPT at the standard rate even if taken out with a ‘connected’ insurer.
7.10 Whether the higher rate apply to ‘card in the box’ schemes
Certain manufacturers’ and dealers’ schemes use the so-called ‘card in the box’ method to sell insurance relating to domestic appliances. This operates by placing a card offering an insurance quote in the box with the goods. If the purchaser takes out a policy, a commission is paid to the manufacturer or seller of the appliance. This commission would normally be payment for a VAT exempt supply of arranging insurance and the insurance premium would be liable to IPT at the higher rate. If, however, the manufacturer or dealer is offering a supply of advertising services in return for a fee which is liable to VAT at the standard rate, the insurance premiums relating to the insurance arranged by them may be treated as liable to IPT at the standard rate.
7.11 Examples of premiums liable to the higher rate
Someone buys an extended warranty from an electrical retailer for a washing machine that they already own.
Someone renews their extended warranty for a washing machine directly with the insurer and the insurer passes a commission to the store that sold the original policy.
A customer buying a video player via mail order completes an application form which was enclosed with the equipment by the manufacturer; the form is sent back direct to the insurer who passes a commission back to the manufacturer.
7.12 Relevant goods
Below is a list of those goods considered to be relevant electrical or mechanical domestic appliances for the purposes of the higher rate.
Mobile phones aren’t included in the list as they’re primarily a means of communication, however, other handheld electrical devices that meet the criteria outlined above and aren’t primarily a means of communication would be included.
This list isn’t comprehensive, but gives a useful indication of the items covered:
- central heating systems
- closed-circuit televisions
- games consoles
- gas cookers
- gas fires
- karaoke machines
- musical instruments (electrical)
- power tools
- phone and fax answering machines
- vacuum cleaners
- washing machines
8. Statement of Practice
8.1 IPT: connected persons
Schedule 6A to the Finance Act 1994 provides that the higher rate of IPT will apply to taxable insurance contracts relating to motor vehicles and domestic appliances where the insurance is arranged through or provided by a person connected Note 1 to (for example) a motor dealer or a retailer of domestic electrical appliances (‘connected suppliers of relevant goods or services’). However, the higher rate will only apply where the insurance relates to relevant goods or services provided by the connected supplier.
In many cases these ‘connected’ transactions will be regular occurrences or easily identified, and the higher rate should be applied accordingly.
However, there’ll be some instances where the ‘connected’ transactions are indistinguishable from other transactions. In such cases, HMRC will accept that where the connection is co-incidental and the insurance isn’t provided as part of a systematic scheme to sell insurance to customers of a connected supplier of relevant goods or services, the premium won’t be subject to the higher rate.
So, where there’re genuine difficulties in identifying connected sales, the higher rate of IPT will only apply where there’s a deliberate or systematic attempt by:
- a supplier of relevant goods or services to sell insurance to purchasers of those goods or services using a connected insurer or insurance agent
- an insurer or insurance agent to sell insurance to customers of a connected supplier of relevant goods or services to cover relevant goods and services provided by that supplier
Where there’re genuine difficulties in identifying connected sales, HMRC won’t expect insurers or insurance agents who’re connected to a supplier of relevant goods or services to ask each and every customer where they made their purchase of relevant goods or services, or if, and if so where, they intend to make such a purchase.
The connected persons provisions won’t generally require the apportionment of premiums between that part of a premium, which is deemed to relate to goods or services supplied by a ‘connected’ supplier of relevant goods or services and that part which is deemed not to. This is because a premium will usually either be treated in its entirety as ‘connected’ (if it’s sold as part of a systematic scheme to sell insurance to customers of the ‘connected’ supplier of relevant goods or services or if its connection is easily identifiable) or it’ll be treated in its entirety as completely unconnected.
This Statement of Practice will be implemented at local level by local IPT officers, with decisions taken by them. Any disputes may be referred to the Independent Adjudicator.
This Statement of Practice may be changed or disapplied if used for the purposes of avoidance of tax.
Note 1 - Any question of whether a person is connected with another shall be determined in accordance with section 993 of the Income Tax Act 2007 and section 1122 of the Corporation Tax Act 2010.
9. Higher rate - travel insurance
9.1 Higher rate IPT
The general provisions relating to the higher rate of IPT are described at paragraph 2.4.
9.2 Travel insurance
When the higher rate of IPT was introduced, it applied to travel insurance (other than free insurance) only when sold by a travel agent or tour operator (or a person connected to, or paying a fee or commission to, a travel agent or tour operator). From 1 August 1998 the higher rate of IPT applies to all insurance premiums relating to taxable travel insurance, including free insurance, regardless of the type of supplier.
9.3 Travel insurance
Travel insurance provides cover for a traveller against risks (‘travel risks’) to which he or she’s exposed at any time before an intended trip or during the course of travel.
9.4 Travel risks
‘Travel risks’ means risks associated with, or related to, travel or intended travel:
- outside the UK
- by air within the UK
- within the UK in connection with either of the above types of travel
- which involves absence from home for at least one night
or risks to which a person travelling may be exposed during, or at any place at which he may be in the course of, any such travel.
The aim is to make sure that the higher rate applies only to true travel policies and not to premiums for other policies which happen to cover risks incurred outside the home.
For example, many home contents policies provide cover against the loss of personal property (such as, a wallet) whilst the insured is out of the home. Although the insured may be travelling when the loss occurs, such a policy wouldn’t normally be seen as travel insurance.
9.5 How mixed policies should be treated
9.5.1 Apportioning the premium
Where a policy provides cover for a traveller against both travel risks and other risks you should normally apportion the premium and account for higher rate IPT on the travel element.
However, provided the travel element doesn’t:
- exceed 10% of the total premium payable under the contract
- include cover for 2 or more of the travel components outlined at paragraph 9.5.2 below
The premium won’t fall within the scope of the higher rate.
But any policy which provides cover against 2 or more of those travel components will attract the higher rate for that element of the premium which relates to the travel regardless of the proportion of the premium relating to them.
9.5.2 Travel components
The travel components are:
- cancellation of travel or of accommodation arranged in connection with travel
- delayed or missed departure
- curtailment of travel or of the use of accommodation arranged in connection with travel
- loss or delayed arrival of baggage
- personal injury or illness or expenses of returning home
A person takes out private medical insurance, which provides for medical diagnosis, consultation, treatment and care as well as the related expenses. If the insured fell ill whilst abroad, the contract would cover the costs incurred and may even include the expenses of returning home. Provided this element of the premium doesn’t exceed 10% of the total premium payable, it won’t fall within the higher rate, because only one of the travel components above (personal injury or illness or expenses of returning home) is applicable in this instance.
9.5.4 Private medical insurance with travel add-ons
The part of the premium relating to travel risks in individual private medical or personal accident policies would normally fall within the limits set out in paragraph 9.5.1, although some of these policies may have a travel add-on, which contains 2 or more of the travel components (see paragraph 9.5.2).
Under normal circumstances, the policy should be apportioned between the travel elements of the policy at the higher rate (in both the main policy and the add-on) and non-travel risks at the standard rate. However, to ease administration, in such cases we’ll normally only require insurers to apply the higher rate to the travel add-on. Insurers should bring such cases to our attention.
9.6 Whether the higher rate apply to corporate travel policies
For the higher rate to apply, the risks covered by the policy must be those of the person travelling. Many corporate ‘travel’ policies are - in effect - employer liability contracts, where an employer sending an employee on business owes that employee a duty of care.
So if, for example, the employer has undertaken to recompense an employee for unforeseen additional expenses (such as, medical or loss of baggage) incurred during business travel, he may take out a policy to cover this risk. In these circumstances it’s the employer’s risk that’s covered and he’s the insured party. The employee has no right to make a claim under the policy. This would be the case even if the policy continued to provide cover where the employee extends a business trip into a holiday.
These ‘liability’ policies aren’t travel insurance and won’t be subject to the higher rate.
There may be corporate policies where it’s the employees’ own risks that are being covered and they’ve the right to make a claim on the policy. In this situation the higher rate will apply.
9.7 Whether the higher rate apply to insurance supplied free of charge and discounted insurance
All travel insurance supplied free of charge is subject to the higher rate. Before 1 August 1998, where an intermediary provided free travel insurance with holidays, the insurer accounted for IPT at the standard rate on the premium charged to the intermediary.
Where insurance is supplied to the insured for a price less than the intermediary pays to the insurer, the higher rate is due on the full premium regardless of what the insured pays. This change took effect from 1 August 1998.
In this respect, travel insurance is different from the other types of insurance liable to the higher rate (see paragraphs 6.4, 6.5, 7.4 and 7.5).
9.8 Whether the higher rate apply to annual travel policies
The higher rate of IPT applies to all annual travel policies.
9.9 Whether the higher rate apply to roadside assistance
Some roadside assistance insurance (for example, AA, RAC cover) is supplied to travellers who intend to take their vehicle with them. This is regarded as insurance relating to a motor vehicle risk (see paragraph 6.12) not to a travel risk, so it won’t be liable to the higher rate of IPT unless supplied by a person described in paragraph 6.2 (for example, motor dealers).
10. Registration for IPT
10.1 Whether I should register for IPT
If you’re receiving taxable insurance premiums as an insurer or form the intention to receive premiums as an insurer, you’re required to register and account for IPT.
If you’re receiving insurance premiums as an insurer wholly in relation to exempt insurance contracts (paragraph 2.3), then there’s no requirement to register and account for IPT.
If you’re receiving insurance premiums as an insurer partially in relation to exempt insurance contracts and partially in relation to taxable contracts then there may still be no requirement to register and account for IPT (see paragraph 10.4).
If you’re a taxable intermediary (see paragraph 2.4.3), you’re also required to register and account for IPT.
10.2 When I must register for IPT
You’re required to notify HMRC within 30 days of forming the intention of receiving, as the insurer, taxable premiums, that’s:
- premiums (see paragraph 3.1)
- for insurance contracts (see paragraph 3.3)
- which aren’t exempt (see paragraph 2.3)
You must be registered from the date you receive (or someone receives on your behalf) your first taxable premium.
If you’re a taxable intermediary (see paragraph 2.4.3), you’re required to register within 30 days of the date on which you decide to charge taxable intermediaries’ fees.
If you don’t notify HMRC at the proper time, you may be liable to a financial penalty (see paragraph 20.1).
10.3 How I register for IPT
If you’re a partnership, please make sure that you also complete form IPT2, which asks for name and address details of all partners. This forms part of your application to register.
When you’ve filled in and signed form IPT1 and form IPT2, if appropriate - please send the form(s) to:
HM Revenue & Customs
Excise Processing Team (IPT)
10.4 De minimis policies - waiver to submit returns
- you write a ‘mixed’ policy with elements of exempt and taxable insurance cover
- the premium for the policy as a whole is £500,000 or less; and
- 10% or less of the total premium for the policy relates to taxable insurance risk
You don’t need to charge or account for IPT on that contract (see paragraph 13.8).
If all your policies fall into this category, you’re still required to notify your liability to register for IPT because you’ll be receiving taxable premiums. You must do this on form IPT1. However you may apply for a waiver from rendering returns so that you don’t have to charge IPT or complete return forms. You should confirm that you expect all your taxable insurance business to be below the de minimis limits.
Even if granted this waiver, you remain a registrable person and we may contact you periodically for assurance that all the business you write still falls under the de minimis limits. You must also monitor this yourself and contact HMRC as soon as you write any business which doesn’t fall within the de minimis limits so as to avoid any retrospective liability to tax and (if you’re assessed) interest and penalty on that tax.
10.5 How I’ll know I’ve been registered
You should receive your certificate of registration within 3 weeks of sending in your form IPT1. This will give your IPT registration number and show your date of registration. It’ll also tell you when your first IPT return is due.
When you receive your registration certificate, please check that all your details are correct. If there’re any errors, contact the IPT Helpline. They’ll make sure you receive an amended certificate.
10.6 When I should notify changes in registration details
While you’re registered you should notify HMRC, within 30 days, of any changes in your business which may affect your registration. This will help HMRC to keep our records up to date and deal with your IPT affairs more efficiently.
If you don’t notify us of changes in your registration details at the proper time, you may be liable to a financial penalty (see paragraph 20.1).
10.7 When I should notify liability to be deregistered
You’re required to notify us within 30 days if, at any time, you cease to have the intention to receive taxable premiums or charge taxable intermediaries’ fees. This notification should be made to us in writing.
If you don’t notify us at the proper time, you may be liable to a financial penalty (see paragraph 20.3).
11. Registration in special circumstances
11.1 Group treatment
11.1.1 Joint registration of corporate bodies
A group of at least 2 corporate bodies may account for IPT under a single registration.
Corporate bodies are eligible to be treated as members of a group if:
- one of them controls each of the others
- one person (whether a corporate body or an individual) controls all of them
- 2 or more individuals carrying on a business in partnership control all of them
For IPT purposes, one body controls another if it’s:
- empowered by statute to control that body’s activities
- that body’s holding company within the meaning of section 736 of the Companies Act 1985
An individual may be regarded as a controlling body if the individual holds control over the other bodies in the same way as a holding company.
11.1.2 UK establishment of corporate bodies
All corporate bodies wishing to be included in an IPT group must be ‘resident’ or ‘established’ in the UK. The condition of residency is usually satisfied if at least one director with full voting rights is resident in the UK and regularly attends board meetings. The term ‘established’ applies where a body has an ‘established place of business’ in the UK. This condition is usually satisfied if:
- you’ve a specified or identifiable place at which you carry on business
- there’s some visible sign or physical indication that you’ve a connection with the premises
- your place of business is intended to have some degree of permanence
11.1.3 Representative members
If you wish to apply for group treatment, you must nominate one of the corporate bodies to act as the ‘representative member’. The representative member must fill in forms IPT1, ‘Application for registration’ and IPT50, ‘Application for group treatment’. Form IPT51, ‘Group member details’ must also be filled in and signed by all group members. Forms can be obtained by contacting the IPT helpline.
11.1.4 Conditions of group treatment
If you’re allowed group treatment, the following conditions will apply:
- any taxable business carried on by a member of the group shall be treated as carried on by the representative member
- the representative member shall be taken to be the insurer in relation to any taxable insurance contract where a member of the group is the actual insurer
- any receipt by a member of the group of a premium under a taxable insurance contract shall be taken to be a receipt by the representative member
- all members of the group shall be jointly and severally liable for any tax due from the representative member
Important: You must account for and pay IPT on all taxable premiums charged within an IPT group, unlike most instances of group treatment for VAT.
11.2 Partnerships and unincorporated bodies
If you’re a partnership, each partner will be jointly and severally liable for all obligations and liabilities in relation to IPT. This includes notifying liability to register.
If you’re an unincorporated body, all obligations and liabilities (including notification of liability to register) shall be the joint and several responsibility of:
- every member holding office as president, chairman, treasurer, secretary or any similar office
- if there’s no such office, every member holding office as a member of a committee by which the affairs of the body are managed
- if there’s no such office or committee, every member
But it’ll be satisfactory if one of the above meets the obligations and discharges the liabilities of the unincorporated body.
11.3 Overseas insurers
11.3.1 Registration of overseas insurers
If you’re an insurer with no business or other fixed establishment in the UK and you’re receiving, or you intend to receive, taxable premiums in relation to risks located in the UK, you register and account for IPT. You may appoint an agent to deal with your IPT affairs, or you can deal directly with us. These new options replaced the requirement to appoint a UK-based tax representative, which was withdrawn from 21 July 2008.
11.3.2 Appoint an agent
While it’s preferable for you to nominate a UK-based agent to deal with your IPT affairs, you can have an agent based anywhere in the EU. We’re unable to accept an agent based outside the EU. When you first register for IPT, record the agent’s details on the registration form and sign the declaration authorising us to deal with that agent. You must obtain the authority of the agent to act on your behalf before doing so.
Your agent won’t be liable for any tax that’s due.
If you’re already registered and wish to nominate a new agent you simply need to write in and tell us the name and address of the agent, the date from which they’ll act for you and confirm that you authorise us to deal with the agent. You must obtain the authority of the agent to act on your behalf before doing so. All your correspondence will then be sent to the agent and we’ll usually deal with them in the first instance.
In order to deal with your IPT affairs correctly, it’ll be necessary for you to have adequate systems in place to make sure that all returns and payments are submitted on time, though the agent won’t be liable for any tax that’s due. It’ll be necessary for you to be able to arrange for records to be made available in the UK should we need to see them, although, this might be arranged through your agent.
11.3.3 Current tax representatives
If you were acting as a tax representative for an overseas insurer prior to 21 July 2008 you remain jointly and severally liable for any tax due before that date. However, if you continue to represent the overseas insurer you’ll not be liable for any tax due after that date. We’ll already have authorisation in place for you as a tax representative and will continue to treat you as agent of the insurer after 21 July 2008 unless we’re informed otherwise.
11.3.4 Deal with us directly
Insurers have the option of appointing an agent or dealing with us directly. Newly registering insurers can tell us which option they wish to use on the IPT1 registration form. Insurers who’re already registered and use an agent can write in and tell us that they wish to deal with us directly with effect from a specified date. We’ll then send correspondence directly to you. It’ll be necessary for you to arrange for your records to be made available in the UK should we need to see them (which, depending on the circumstances, may involve no more than you posting a selection of specified records to us).
11.3.5 Pay IPT
We accept payments from UK bank accounts by electronic transfer via direct debit; Bacs or CHAPS and we’d encourage you to use one of these methods. Where you do so, you can register to join our credit transfer scheme which gives you an additional 7 days in which to make your payments.
11.4 Special arrangements for Lloyd’s syndicates
A Lloyd’s syndicate may be registered for IPT rather than each individual member. The registration will be made in the name of the syndicate, or if the syndicate isn’t known by a name, registration will be made by reference to any number or identifying feature used by the syndicate.
11.5 Persons already registered for a different insurance business
Each registration covers all the taxable insurance business carried on by the registered person. This person can be a sole proprietor, a partnership, a limited company, an unincorporated body, a Lloyd’s syndicate or some other body.
If you’re already registered for IPT and you become liable in respect of another insurance business, you don’t need to register your new business separately. You should inform us so we can amend your records.
11.6 Take over a business as a going concern
11.6.1 Register your business
If you’re not already registered for IPT and you’re taking over a registered business as a going concern - buying the business without causing any significant break in trading - and the business will continue to receive taxable premiums after the transfer date, you must register for IPT. This also applies if you’re registered for IPT and you change the legal status of your business.
11.6.2 Take over the existing registration number
You can, if you wish, ask to use the existing registration number of the business, but you and the previous owner must both agree to certain conditions. If the number is transferred you’ll become responsible for all existing IPT liabilities of the previous owner. The conditions of transfer are explained fully on form IPT68, ‘Request for transfer of a registration number’, which you should fill in if you wish the number to be transferred. You can request this form from:
HM Revenue and Customs
Excise Processing Team
You must also fill in form IPT1 to notify your liability to register.
11.6.3 Register with a new number
When taking over an existing business you must register on form IP1 to obtain a new IPT registration number. In these circumstances the number used by the previous owner will be cancelled.
11.6.4 Transfer records
Normal commercial practice is for the previous owner of the business to transfer records to the new owner. In these circumstances, the requirement for the previous owner to keep IPT records for 6 years will be waived.
11.7 Captive insurers
If you’re a captive insurer (an insurance company set up to insure or reinsure all or part of the risks of your parent or founder) receiving taxable insurance premiums, you’ll have to register and account for IPT. If you don’t have any business establishment or other fixed establishment in the UK, you’ve the option of dealing directly with HMRC or appointing a UK or EU-based agent to act on your behalf. See paragraph 11.3 for more information.
12. Account for IPT
12.1 When I should start accounting for IPT
Once you’re registered for IPT, you’ll be given your date of registration and you must account for IPT from this date. You must account for IPT in the accounting periods in which the tax point occurs.
12.2 Tax points
The tax point is the trigger to account for IPT, and tax is due one month after the end of the accounting period in which the tax point occurs (see paragraph 18.1.3). The tax point depends on whether you’re using the cash receipt method (see paragraph 12.3) or the special accounting scheme (see paragraph 12.4). The tax point is the date the premium is:
- received if you’re operating the cash receipt method
- due if you’re operating the special accounting scheme
Taxable intermediaries may only use the cash receipt method.
Whichever method you choose, you must account for tax using this same method in respect of all taxable insurance contracts you enter into (or, if you’re a member of a group for IPT purposes, all taxable insurance contracts entered into by your group).
We’ll expect premiums to be written into accounts without undue delay.
12.3 Cash receipt method
Under the cash receipt method, the tax point is when you receive taxable premium payments or when they’re received on your behalf. Any premium payment received under a contract of insurance by any person on your behalf (whether an agent or not) is treated as being received by you. The subsequent transfer of a payment relating to the premium or part of a premium to you by that person will then be disregarded for the purposes of IPT.
12.4 Special accounting scheme
Under the special accounting scheme, the tax point is the date when your accounts show the premium due to you (the ‘written premium’ date). For example, if you make an entry into your records on 10 July showing a premium as due to you on 7 July, the tax point is 7 July.
12.5 Alternative tax points
You can also use the date you enter the premium as the trigger to account for tax. For example, if you make an entry into your records on 10 July showing a premium as due to you on 7 July, and you’ve adopted as your tax point under the special accounting scheme the date on which you enter a premium into your accounts, then the tax point would be 10 July.
If the date on which you enter the premium into your records is before the date as at which a premium is due to you, then using the date of entry as a tax point may result in accounting for tax before it’s legally due. As long as you adopt a consistent practice you may either account for IPT on these transactions on the correct IPT return or, for administrative simplicity, account for them in the earlier tax period. For example, your accounting periods are calendar quarters and you’ve chosen to account for tax, under the special accounting scheme, on the date on which you enter a premium into your accounts.
The date as at which the premium is due to you is 1 April, and the date you enter it into your records is 31 March. The accounting period in which tax is legally due is that which runs from 1 April to 30 June but, because your system is geared up to account for tax on the date of entry of a premium, you may wish to account for the tax in the period which runs 1 January to 31 March.
If you find it difficult to account for tax at the legal tax point described above or in paragraph 12.4, you should discuss using an alternative tax point with us. An alternative tax point must be applied consistently and if there’s evidence of manipulation or abuse, we may withdraw any individual agreement with an insurer.
12.6 Change methods
Yes. If you wish to change your method you must seek approval from us. You cannot change from the special accounting scheme to the cash receipt method until after a year.
12.7 General guidelines
Whatever method you adopt, it must meet certain time limits for bringing the tax to account. To make sure that there’s no undue delay in accounting for tax, you must normally write the premium within 90 days of the premium being received either by you or on your behalf.
As part of our checking process, a number of tests will be applied, and HMRC will expect to see the premium written in the same accounting period as the earliest of:
- 14 days after notification of receipt of premium by a broker or other intermediary
- 14 days after notification by a broker or other intermediary of commencement of cover to which the premium relates (this 14 day period commences on the date the premium is agreed, or, for the London Market, the date the slip is closed)
- 14 days after the receipt of the premium by the insurer
- 30 days after the commencement of the cover to which the premium relates
The last of these guidelines doesn’t apply to types of insurance where it’s normal for there to be a delay of more than 30 days between the commencement of the cover, and the notification to the insurer by the intermediary arranging the insurance that cover has commenced. (For example, where an insurer has granted delegated authority to a broker to accept business on behalf of the insurer, and the broker notifies the insurer periodically about who’s covered.)
If you’ve problems in complying with the guidelines above (because of the business you write, or because they present difficulties for your accounting system) you should contact our IPT Helpline.
12.8 Calculate the tax
There’re 2 rates of tax, the:
- standard rate at 12%
- higher rate at 20%
The previous rates were:
- standard rate at 10% (before the 1 June 2017)
- higher rate at 17.5% (before the 4 January 2011)
These percentages are applied to the chargeable amount for IPT (see paragraph 3.2), which includes any commission paid to (or retained by) brokers and other intermediaries out of the premium.
The formula for extracting IPT from a tax-inclusive premium (the ‘tax fraction’) is as follows:
|IPT rate||Tax fraction|
12.9 Account for IPT on additional premiums
Under the special accounting scheme you’ll account for additional premiums on the date of entry into your records. This applies whether an additional premium is charged in relation to a new risk or because the initial premium relating to the original risk could only be estimated. If you cannot account for tax on additional premiums at the correct tax point (see paragraph 12.2 for information on tax points), and you wish to use an alternative trigger date (such as the inception date of a policy if this is different) you should consult us.
Under the cash receipts method you’ll account for the additional premiums when you receive them or when they’re received on your behalf.
12.10 Account for IPT on payments by instalments
If you use the cash receipt method, you’ll account for tax on each instalment payment received.
If you use the special accounting scheme, you’ll account for tax on the date you show the premium as due. If you chose an alternative tax point (see paragraph 12.5), such as date of entry, tax will be due each time an alternative tax point occurs. Whatever the tax point you use, if the premium is written into your accounts as a single amount at inception then tax is due on that amount, in full, even if the option of payment by instalments is offered. However, if the premium is written on, for example, a monthly or quarterly basis to tie in with actual receipt of premiums, then tax will be due each time a premium is written.
12.11 Account for IPT on advance payments
Under the cash receipt method receipt of cash creates a tax point. If the cash is received before it was due, then, as long as you decide to renew the policy and a contract of insurance is put in place, you’ll account for tax on the date of receipt of the cash.
Under the special accounting scheme tax isn’t due until the date you show the premium as due, the date of entry or an alternative agreed date. Whatever date is used, HMRC will expect to see the tax accounted for within 90 days of the receipt of cash.
12.12 Account for IPT on payments in a foreign currency
Where premium payments are made in a foreign currency, such payments should be converted to sterling on the date of receipt of cash or the date as at which the premium is written (or any other consistently applied and approved tax point if you’re using the special accounting scheme) - using the period rate of exchange published by us. If this is impractical, an alternative method and date may be agreed with us (the same exchange rate as that used by an insurer for VAT partial exemption calculations would usually be acceptable). We’d expect insurers to adhere consistently to any alternative rate agreed.
12.13 Account for IPT on discounted premiums
If the discounted amount is what’s due under the contract of insurance, you should account for tax on this amount. An example of a reduced premium being due under the contract of insurance is an insured party qualifying for a discount because of a no claims bonus.
However, if you operate the special accounting scheme and write the full value of the premium in your accounts, then IPT will be due on the full amount of the premium written, even if you offer a discount (showing the value of the discount as a return premium). However, credit would be available in relation to the discounted amount.
12.14 Estimated premiums
If you, as an insurer, sell a taxable insurance contract through a broker or agent and you don’t know the final selling price of the insurance, you should obtain the information you need to compile your IPT return accurately from your intermediary. If this isn’t possible, or proves difficult in the short term, you may estimate the gross premium. Estimation should be based on a representative sample of the final selling prices charged by your intermediaries. You should agree any estimation with us.
12.15 Terrorism insurance - co-insurance
There’re special arrangements for accounting for IPT on premiums relating to terrorism insurance where more than one insurer underwrites the risk. Where a property risk is co-insured, the lead company is responsible for collecting and remitting the entire terrorism premium exclusive of IPT to Pool Reinsurance Company Limited (Pool Re) - the Government reinsurer established under the Reinsurance (Acts of Terrorism) Act 1993. Follower insurers never receive their share of the terrorism premium, although they’re liable to account for tax on such premiums under the IPT legislation.
As an administrative concession, lead insurers may account for, and pay, all the IPT on terrorism premiums which they receive. Followers won’t need to account for IPT on their shares of such premiums when the leader has done this. Followers will, however, remain liable for their share of the tax should the leader fail to account for, or pay, the tax to us.
This concession doesn’t apply in cases where, as an alternative to the broker remitting the entire premium to the lead insurer for onward transmission to Pool Re, the relevant London Market policy signing office allocates the IPT - inclusive premium to the follower insurers who should account for this IPT on their IPT return for the relevant period.
12.16 Special arrangements for Lloyd’s syndicates
A syndicate should make returns on its own behalf unless it’s elected for Lloyd’s to act as its representative.
12.16.1 Obligations and liabilities
The obligations and liabilities of a Lloyd’s syndicate in relation to IPT are the joint and several responsibility of the:
- underwriting member of the syndicate
- managing agent of the syndicate
A syndicate which is registered for IPT and which has elected to use the special accounting scheme may elect that Lloyd’s will act for it in accounting for IPT. In these circumstances, Lloyd’s is also jointly and severally responsible for anything that’s required to be done in relation to IPT.
12.16.2 Elect for Lloyd’s to act as representative
If a syndicate opts for Lloyd’s to act as its representative, a notification should be made to us (this may be done at the time of notifying a liability to register by ticking a box on form IPT1). You should specify the date of the first accounting period in which Lloyd’s will act as representative. An election for Lloyd’s to act as a syndicate’s representative will remain in force until after the end of an accounting period in which the syndicate:
- gives notice in writing to HMRC that the election is to cease
- is deregistered or ceases to use the special accounting scheme
If a syndicate writes business that isn’t handled by the Lloyd’s central accounting system, it may elect for Lloyd’s to act as their representative provided that all such business is reported to Lloyd’s.
Lloyd’s won’t act as representative in accounting for any syndicate which writes primarily motor business.
Lloyd’s will account for tax by means of a composite return (form IPT100L) for each accounting period, on behalf of all syndicates which have elected for Lloyd’s to act as their representative. The composite return will be accompanied by a summary schedule of participating syndicates on form IPT100L(S).
13.1 Exempt and taxable supplies
If you write a policy which has elements relating to both exempt and taxable risks, or risks taxed at different rates, then you’ll have to calculate that amount of the premium which relates to each element of the risk. Although you may do this by consulting with the broker or the insured party, you the insurer are responsible for ensuring that the final apportionment is made in a just and reasonable manner.
Note: There’s no scope for apportionment of taxable intermediaries’ fees (see paragraph 2.4.4 for more information).
13.2 Examples of apportionment formulae
This table contains some examples of possible apportionment methods for common types of policy. Whether you use one of these examples, or an alternative method to apportion a premium, you must be able to demonstrate to us that the method used gives a just and reasonable result. You should make sure that the apportionment isn’t arbitrary and is based on firm, verifiable information. The method of apportionment used must have some relationship with the risk being covered. See paragraph 17.1 for information about the records you’re required to keep.
|Buildings and/or contents||Value of UK property divided by
Value of all property insured
|This formula can be used where a policy covers buildings situated both inside and outside the UK, and separate premiums aren’t quoted for each building.|
|Vehicles||No of vehicles registered in the UK divided by
Total no of vehicles
|Other world-wide risks||Turnover of UK establishments divided by
Turnover of non-UK and UK establishments
Number of UK directors/officers divided by
Number of non-UK and UK directors/officers
Number of employees in UK divided by
|Examples of other world-wide risks include insurance against:
business interruption, professional indemnity and product tamper,
public, employer’s, product; and directors’ and officers’ liability
employers’ policies covering employees for personal accident,
fidelity guarantee cover (held by an employer to cover against theft by employees).
|MAT - marine cargo cover||Number of intra-UK journeys divided by
Number of world-wide Journeys
|This formula can be used if the policy covers journeys world-wide, including some which are totally within the UK (and thus taxable).|
The location of risk rules (paragraph 5.2.1) give more information about when a building, a vehicle or an establishment is in the UK.
13.3 Definition of establishment
Where the policyholder is a private individual, no apportionment is necessary unless the policy covers:
- buildings and contents
because the risk is located where that individual habitually resides (see point (d) in paragraph 5.2.1).
However, where the policyholder is a business, apportionment of the insurance policy often depends on the location of its establishments (see paragraph 5.2.5). It’ll be necessary for the insurer to demonstrate that there’s a clearly identifiable risk attaching to the establishment for apportionment to be applicable.
For example, a manufacturer might’ve a factory in the UK and 2 sales offices abroad. If the manufacturer takes out a manufacturer’s product liability policy it may be apportioned to reflect the fact that the manufacturer sells abroad and, crucially, has establishments there. (A product liability policy may not be apportioned to reflect sales abroad if there’s no non-UK establishment.)
13.3.1 Political risks insurance
Where a UK company takes out insurance to protect capital it’s invested in an overseas subsidiary in case of loss as a result of a political act such as nationalisation, the risk doesn’t attach to the overseas subsidiary but to the investment made by the UK company and the premium is liable to IPT.
Whatever the method you use for apportionment, you should make sure that you keep the following information:
- a note of the rationale used, so that you can justify the apportionment if requested to do so by us
- an audit trail to show from where you derived the figures used in your calculations
As part of our audit of your IPT systems we may wish to make selective tests on the credibility of apportionment calculations.
13.4 Agreements with us
You’re required to apply an apportionment using a ‘just and reasonable’ method. In many cases the method to apply will be routine and self-evident. In other cases you may need to devise a method tailored to the particular circumstances of a policy. In cases giving rise to doubts or difficulties you’re advised to consult us to obtain approval for a method, although this is entirely optional.
Where a policy covers a number of different risks (for example, property, vehicles and product liability), you may wish to apply a different apportionment method to each part of the policy. Again, as long as this is done on a basis that’s ‘just and reasonable’, this is acceptable.
It’s open to you or to us to review any apportionment method at any time. Where your apportionment method(s) has been agreed with us, any proposed changes should be discussed between the parties. Such changes will normally be made by consensus but, in any event, won’t give rise to a retrospective liability to tax (except in cases of arithmetical or similar errors). You’ll, of course, be expected to notify us should, at any time, the agreed method(s) cease to be just and reasonable.
13.5 Consideration of apportionment methods
Where we’re considering an apportionment method for the first time and, exceptionally, consider an alternative method to be fairer, we’ll nevertheless not normally seek to apply our method retrospectively unless the:
- increase in the taxable element of a policy is more than 5%
- additional tax considered to be due under the policy exceeds £2,000
- insurer consistently underdeclares (in this case HMRC will give prior notice before they seek to apply their method retrospectively)
Where these parameters are exceeded and an assessment is issued it’ll be for the full amount that, in our best judgement, is underdeclared.
13.6 Split policies to avoid the need for apportionment
If you and your insured decide to split the cover under a mixed policy into 2 or more separate policies (each bearing a different tax treatment) to avoid the need for apportionment, each separate policy must carry a premium which is independent of the premium on any other policy. That’s, it must be set at open market value. In order to prevent schemes which undervalue premiums, we may direct that IPT should be charged on the premium that would’ve been charged in ‘open market conditions’ (see paragraph 3.2.1).
Where several insurers are involved, the lead insurer will normally be expected to make the decision about how much of a premium relates to each element of the risk that’s a different tax treatment. Co-insurers will normally follow this lead, although, on the basis of the information available to them, each co-insurer is also responsible for ensuring that any apportionment is just and reasonable. Where co-insurers have followed such a lead and an underdeclaration of tax is later established, both the lead insurer and co-insurers will still be liable for any IPT undeclared on their portion of the risk, plus any interest. The liability of each insurer for tax, interest and penalties will be limited to each insurer’s share of the risk.
If you’re the lead insurer in a co-insurance arrangement you’re responsible for retaining the paperwork to demonstrate to us that any apportionment is done on a just and reasonable basis. If, as a co-insurer, you’re given information on how an apportionment was made, you should retain it for production to us if requested.
13.8 De minimis concession
Please note that the de minimis concession is in the process of being formalised into the IPT legislation. Once that’s complete the ESC will be withdrawn. The new legislation is intended to exactly replicate the ESC, and so an insurer will not have to alter any of their current practises in this area.
You don’t need to account for tax on a contract if the:
- premium relating to a contract is £500,000 or less
- taxable element of the premium is 10% or less
This is known as the de minimis concession.
You may use any basis to apportion a policy to see whether it falls below the de minimis limits, as long as the method is just and reasonable. The use of the de minimis concession is optional for insurers.
In co-insurance arrangements, the entire premium is subject to the de minimis test and not just that proportion of the premium, which relates to the risk underwritten by each co-insurer.
Where a policy covers different risks (for example, property, vehicles and product liability), you may not split the policy into its component parts (such as property, vehicles) with a view to applying the de minimis limits to the component parts. (You may, of course, split the cover into 2 or more separate policies to avoid the need for apportionment at all, as indicated in paragraph 13.6.)
Insurers who plan to use the de minimis provisions will need to assess at the outset of cover whether the contract is likely to be de minimis. For fixed term contracts, the de minimis test must be applied to the totality of premiums due during the period of the contract. For open covers the 2 parts of the de minimis test must be applied on a consistent annual basis.
13.8.1 De minimis limits and registration
If you only underwrite business where each policy falls under the de minimis limits, you may apply for a waiver of registration, but you should nevertheless notify us of the fact that you’re writing taxable insurance business (see paragraph 10.4).
13.8.2 Additional or return premiums which affect the limits
Once you’ve made the decision about whether to treat a contract as de minimis, the figures upon which the decision was based may be altered by the receipt of additional premiums or by return premiums:
- if additional premiums clearly take the contract over the £500,000 limit or the 10% limit, you must immediately cease to treat that premium as de minimis
- if a return premium puts it beyond doubt that a contract is de minimis, you may claim a tax credit for the amount of tax previously accounted for under that contract by deducting the relevant amount of tax from any tax due for the accounting period in which the premium was repaid or any later accounting period
13.8.3 Effect of regular additional premiums
Where additional premiums are a regular feature of the policy, for example under marine cargo and goods in transit insurance, the variations in cover may make it difficult for you to monitor the 10% limit each time a premium is received. In these cases, therefore, once the initial decision on whether to treat a contract as de minimis has been made, you needn’t consider every additional premium with a view to determining whether or not it’s taken the premium over the 10% limit. Instead:
- where the policies are annual contracts, you may conduct that reconsideration:
- at the end of the contract
- prior to charging the final additional premium (if it eases IPT collection difficulties)
- where the policies are longer term or open ended, you’ll be expected to re-examine eligibility under the de minimis 10% rule on a regular basis, which should be:
- at least annually
- agreed with HMRC
13.8.4 Tax points for additional premiums
Where there’s an additional premium which:
- takes a premium over the £500,000 de minimis limit (see paragraph 13.8), or
- clearly takes the contract outside the 10% de minimis limit (see paragraph 13.8.2)
you should account for all tax due under the contract to date on the tax point (see paragraph 12.2) of that premium.
If there’s no premium which clearly takes the contract outside the de minimis limits (that’s, the contract is of the kind described in paragraph 13.8.3), you should account for all tax due under the contract to date on the tax point of:
- the final additional premium received at the end of the annual contract
- if it isn’t an annual contract, the final additional premium before the review described at point (b) in paragraph 13.8.3
13.8.5 Examples of tax points for additional premiums
Two examples may be useful here in illustrating the operation of the rules in paragraph 13.8.4:
Where an annual policy covering property worldwide is amended after 6 months to include a UK building, it may be clear that this puts the taxable UK element of the premium above 10% of the total premium. In such a case, it meets the conditions of paragraph 13.8.2 and the insurer must account for the total amount of tax using the date of entry of the additional premium as a tax point, rather than waiting until the end of a period of cover.
Where the cumulative effect of routine additional premiums under a marine cargo or goods in transit policy takes the premium over the 10% de minimis limit, it’s the kind of policy described in paragraph 13.8.3, and the tax point for all tax due will be the date of entry or date of receipt of the final additional premium of the contract or the last additional premium before the agreed regular review of the 10% de minimis limit.
Under this type of policy, the impact of individual premiums will be disregarded for tax point purposes until the end of the contract or the annual review, unless they:
- take the premium over the £500,000 limit
- are accompanied by an exceptional change in circumstances which clearly takes the contract outside the 10% de minimis limit
14. Changes in rate
14.1 Rate changes
When IPT was introduced, there was a single rate of 2.5% from 1 October 1994 to 31 March 1997.
The standard rate:
- 1 April 1997 to 30 June 1999 - a standard rate of 4%
- 1 July 1999 to 3 January 2011 - a standard rate of 5%
- 4 January 2011 to 31 October 2015 - a standard rate of 6%
- 1 November 2015 to 30 September 2016 - a standard rate of 9.5%
- 1 October 2016 to 31 May 2017 - a standard rate of 10%
- 1 June 2017 to date - a standard rate of 12%
The higher rate was, from:
- 1 April 1997 to 3 January 2011, 17.5% on certain types of insurance arranged through certain suppliers of other goods and services
- 1 August 1998, extended to all taxable travel insurance, regardless of the type of supplier
- 4 January 2011 to date - a higher rate of 20%
14.2 Announcement dates and Implementation dates
This table shows the date the rate change was announced by a Minister (the ‘announcement date’) and the date the change came into effect (the ‘implementation date’).
Special rules, designed to prevent tax avoidance, apply to premiums received or written between these dates known as anti-forestalling provisions.
|Date the changes took effect||Announcement date|
|1 April 1997||27 November 1996|
|1 August 1998||17 March 1998|
|1 July 1999||9 March 1999|
|4 January 2011||22 June 2010|
|1 November 2015||8 July 2015|
|1 October 2016||16 March 2016|
|1 June 2017||8 March 2017|
15. Changes in rate - arrangements from 1 June 2017
The Insurance Premium Tax rules changed from 8 March 2017 with the insertion of section 66C of Finance Act 1994.
There is no longer a distinction between insurers using the cash receipts or special accounting schemes and concessionary periods are no longer applied.
15.1 Policies taken out or paid for around the date of a rate change
All taxable premiums received on or after the implementation date, that relate to risks under a policy that started on or after the implementation date, will be taxed at the new rate.
Any premium received on or after the first anniversary of the implementation date will be taxed at the new rate, regardless of when the policy began.
Any premiums received before the implementation date will be subject to tax at the old rate (unless the anti-forestalling measures apply).
15.2 Additional premiums
If a premium is received, and it is in respect of cover for risks added to a policy after the implementation date (even if the policy incepts before the implementation date), then it is subject to IPT at the new rate. This continues the effect of the anti-avoidance measures for previous rate rises.
15.3 Tax credits
Tax credits on return premiums should be claimed at the IPT rate applicable to the original premium where this can be established. Where this isn’t possible, you should use an estimation process that can be shown to give a reasonable result based on the specific circumstances in question.
15.4 Anti-forestalling provisions
Special arrangements have been made to prevent tax avoidance during the period between the announcement date of a rate rise and the implementation date for that rate rise.
Certain premiums received or written during this period are deemed to be received or written on the date of the rate change, and are subject to the new rate.
15.4.1 Advance payments
Premiums will be deemed to have been received or written on the implementation date (and will be subject to the new rate of tax) if both the:
- insurance contracts commence (or have a renewal date) on or after the implementation date of a rate change
- premiums due under those contracts are received or written between the announcement date and the implementation date of the rate change
This won’t apply if the insurance is of a sort where it’s the insurer’s normal practice for premiums to be received or written before the date when cover begins.
15.4.2 Extended cover
Anti-forestalling provisions apply to insurance contracts that:
- are taken out or renewed between the announcement date and the implementation date of a rate change
- provide extended periods of cover which continue beyond the first anniversary of the rate change
- provide cover that commences before the implementation date of the rate change
- have premiums due that are received or written between the announcement date and the implementation date of the rate change
In these cases, the premium must be apportioned between that relating to cover up to the first anniversary of the implementation date and that relating to the remainder of the policy, with tax at the new rate on the latter portion becoming due on the date of the rate change.
These provisions won’t apply to contracts where the type of insurance normally covers periods exceeding 12 months. Examples of the type of contract that normally offer cover for a period exceeding twelve months include:
- single premium creditor insurance
- credit gap shortfall insurance
- some mechanical breakdown insurance
- building latent defects policies
- mortgage indemnity insurance
16. Changes in rate - transitional arrangements before 1 June 2017
16.1 The concessionary date
Where a concessionary period was granted in connection with a rate rise, this was the date (also announced on the announcement date) on which the transitional period ended. Where the tax point under the special accounting scheme (see paragraph 12.4) took place after the concessionary date, the new rate applied irrespective of when the policy incepted.
16.2 The transitional period for rate changes
The transitional periods for the rate changes were as follows for:
- 1 April 1997 - 6 months, that’s, until 30 September 1997
- 1 August 1998 - 6 months, that’s, until 31 January 1999
- 1 July 1999 - 6 months, that’s, until 31 December 1999
- there was no concessionary period granted (so no transitional period) for the standard and higher rate rises with an implementation date of 4 January 2011
- 1 November 2015 - 4 months, that’s, until 29 February 2016
- 1 October 2016 - 4 months, that’s, until February 2017
- 1 June 2017 - new implementation arrangements applied
16.3 Cash receipt method
Under the cash receipt method of accounting, all taxable premiums received on or after the implementation date of a rate change bore the new rate of tax. Any premiums received before the implementation date were subject to tax at the old rate (unless the anti-forestalling measures apply). Premiums received on or after the implementation date in relation to a policy taken out before that date were subject to tax at the new rate.
16.4 Special accounting scheme
If a concessionary period was granted when the rate of tax changes, then, under the special accounting scheme, there was a concessionary period. This was known as the ‘transitional period’ ending on the concessionary date.
During this period, the old rate of tax applied to taxable premiums for contracts which had an ‘inception date’ (the date when the period of cover under an insurance policy begins) before the implementation date of a rate change, provided the tax point for those premiums occurred before the concessionary date. The old rate of tax applied even if the contracts were written on or after the implementation date.
The new rate of tax applied to all taxable premiums for contracts that had an inception date on or after the implementation date of a rate change.
16.5 Tax points after the transitional period
All taxable premiums, regardless of the inception date of the contract to which they related, that had a tax point after the concessionary date were subject to the new tax rate.
16.6 Additional premiums
16.6.1 Anti-avoidance measures
Anti-avoidance measures helped prevent abuse of the statutory transitional period when additional premiums were received in relation to a taxable insurance contract at or around the time of a rate increase.
The intention was to prevent new risks, which would normally be the subject of a new policy, being added to existing contracts and thereby benefiting from the old tax rate rather than the new rate.
16.6.2 Normal practice
The concept of normal practice was the insurer’s normal practice and not the market’s normal practice. If there was any attempt by an insurer to misrepresent their normal practice so as to benefit from this approach, we’ll consider assessing for any tax underdeclared.
16.6.3 Cash receipt method
Under the cash receipt method, any additional taxable premiums that were received on or after the implementation date were subject to tax at the new rate notwithstanding the contract inception date.
16.6.4 Special accounting scheme
If a concessionary period was granted, then under the special accounting scheme, any taxable premium instalments written on or after the implementation date, but which related to contracts with an inception date before then, were liable to tax at the old rate provided that the:
- tax point relating to that instalment occurred before the concessionary date
- additional premium written did not relate to a new risk
16.6.5 Extensions to policies incepting prior to a rate change
If a concessionary period was granted and you received a request to extend a policy that incepted prior to a rate change, and you wrote the premium in the transitional period, then any additional premium called for in relation to that extension may have been treated as liable to tax at the old rate unless the:
- premium was in respect of a risk which would normally be covered by a new contract
- anti-forestalling provisions apply
For example, if a policy was extended to bring the period of cover into line with a client’s other insurance policies, and the additional premium was written before the concessionary date, then that premium would be liable to IPT at the old rate. If, however, the extension was made to avoid IPT at the new rate and the risk would normally be covered by a new contract, the additional premium is liable to IPT at the new rate.
17. Records and accounts
17.1 Records I need to keep
In order to show the insurance premiums received or written in the course of your business, and any variations in premium value which may affect the IPT you’ve to account for and pay, you should keep the following records from the time of your registration:
- any business and accounting records you’ve
- copies of all invoices, renewal notices and similar documents which you’ve issued
- policy documents, cover notes, endorsements and similar documents or copies of such documents
- all credit notes and debit notes or other documents which show an increase or decrease in the amount of any premiums due, and any copies of such documents that you issue
- any other records specified by HMRC in updates to this notice or any other notices
17.2 Whether I need to keep records in a particular way
You don’t have to keep the records in any set way but you may find that it’ll help you to complete the IPT return if you summarise your records every quarter. If you do this, you may find that it’s useful to retain the summaries so that we’re able to check the figures you’ve used. Similarly, if you’re a taxable intermediary (see paragraph 2.4.3), you should keep records of any business transactions affecting the amount of IPT you’ve to pay, including details of all taxable intermediaries’ fees.
17.3 How long I must keep my records
You must normally keep your business records for 6 years. If, however, this causes you storage problems, involves you in undue expense or causes you other difficulties, you can ask the IPT Helpline if you can keep some of your records for a shorter period. Small businesses with limited storage space may find this particularly useful. You must get our agreement before any of your business records are destroyed before 6 years.
17.4 Production of records
When asked to do so, you must produce the records for inspection so that we can confirm that the correct amount of IPT has been paid. You may find that it’ll help you to complete your IPT returns if you summarise your records every 3 months.
17.5 How I store my records
You may keep your records in hard copy, or electronically provided that copies can easily be produced and there’re adequate facilities for allowing us to view them when required.
18. Your IPT return
18.1 About IPT returns
Once you’re registered for IPT, each month you’ll be notified when your IPT return (form IPT100) is due. The return will cover a period of three calendar months. You should log into your online account and complete the return in accordance with the notes on the form.
You must use this form to account for the IPT due on the premiums with tax points in the tax period covered by the return. You must submit your return by the due date. A hard copy of this form is available on request. This form must also be used to account for taxable intermediaries’ fees (see paragraph 2.4.4) which you’ve received during the tax period.
18.1.1 The tax (or accounting) period
The period covered by the return is called a tax period or an accounting period. As tax periods end on fixed dates throughout the year, your first IPT return may not be for exactly 3 months. The normal length of an accounting period is 3 months although at the time you register for IPT, or at any other time, you may request specially tailored accounting periods. We’ll normally agree to such requests but where this isn’t possible, or where we wish to vary the length of your accounting periods, you’ll be advised in writing of the reason for the decision.
18.1.2 Complete your IPT returns
You should complete each return in full, inserting the details of premiums received or written, and the IPT due.
18.1.3 The ‘due date’
You must submit your return by the due date. This will be the last day of the month following the end of the relevant 3-month accounting period (see paragraph 18.1.1). For example, for the accounting period ending 31 March; the due date will be 30 April.
18.2 Late, incomplete or incorrect returns and payments
You must submit your IPT return and any payment due, to arrive by the due date. If you fail to do this you could be liable to a penalty (see paragraph 20.2)
If you fail to make a return when it’s due or make an incomplete or incorrect return, we’ve powers to assess, to the best of our judgement, the amount of tax you owe. Assessments aren’t issued more than 4 years after the end of the relevant tax period unless there’re special circumstances, such as fraud. In these special cases the period of assessment is limited to 20 years. If you’re issued with an assessment which we or a Tribunal later find to be too low, the amount of the assessment can be increased.
For all assessments made on or after 1 March 2001 we’ll rely on the date of notification of an assessment as the material date for time limit purposes.
If you repeatedly pay assessments instead of sending in IPT returns, the amount for which you’re assessed will be increased with each assessment.
18.3 Adjust for underdeclarations and overdeclarations
If you’re adjusting for an error, you may do so on your IPT return provided:
- the adjustment relates to an error or errors in an accounting period ending no more than 4 years ago, subject to the transitional arrangements described in the previous paragraph
- the amount of the underdeclaration or overdeclaration is limited to £10,000 or if greater, up to 1% of the net value of taxable premiums shown in box 10 of your IPT return, the error not exceeding £50,000
- for overdeclarations, you bore the cost of the error (that’s, the IPT wasn’t borne by a customer or an intermediary)
- the error isn’t deliberate
Prior to 1 July 2008 the above limit for making an adjustment for an underdeclaration or overdeclaration was £2,000 or less.
Where the amount to be adjusted is greater than these limits, or a repayment would unjustly enrich you (see paragraph 19.3), you should contact the IPT helpline.
The flowchart will assist you in deciding whether or not you should include an error on your next return or make an error correction notification.
Errors discovered in relation to accounting periods beginning on or after 1 April 2009 where the due date is on or after 1 April 2010 may be liable to a penalty if they’re careless or deliberate. This also applies to errors corrected via the error correction procedure. If an error is deliberate and concealed this is the most serious level of behaviour and can result in a greater penalty being imposed.
You’ll not be liable to a penalty if an error wasn’t made carelessly or deliberately.
Please see paragraph 20.8 below for more information about inaccuracy penalties.
18.4 Pay your IPT
Subject to arrangement in advance with us you can pay your IPT by any of the following methods:
- online or telephone banking (Faster Payments)
- at your bank or building society using a payslip
- Direct Debit
If you use any of the methods mentioned above, you must submit your return by the due date.
18.5 Whether I can ask for my returns to match my financial year
You’ll normally send returns for calendar quarters ending March, June, September and December. But if you wish, you can ask for your returns to match your financial year. Please send in a written request with your form IPT1 Application for registration.
19. Reclaim money paid as IPT in error
19.1 Money paid in error
If you’ve paid money to us as IPT in error, you may claim it back. But there’re certain restrictions which apply, and which we may use as a defence against any claim you make.
19.2 The 4-year cap
We’ll not be liable to repay any amount paid by you more than 4 years before a claim is made.
19.3 Unjust enrichment
HMRC won’t be liable to repay any amount claimed if that repayment would unjustly enrich the claimant.
Where your customers (the ‘final consumers’, usually the insured persons or policyholders) have, for practical purposes, paid the IPT charged in error, your business would be unjustly enriched at their expense if, by not passing the refund back to them, your business would benefit as a result.
19.4 The reimbursement scheme
The reimbursement scheme (the ‘scheme’) may be used to claim a repayment, but only where you accept that, by receiving a refund of sums overpaid as IPT, your business would be unjustly enriched at your customers’ expense. In such cases, a refund of overpaid IPT will only be made if you agree to reimburse those customers in accordance with the terms of the ‘scheme’ and notify us of this at the time of making your claim.
19.4.1 Who can use the scheme
The scheme can be used by all insurers or taxable intermediaries currently registered for IPT who wish to refund to their past customers (usually the insured or the policy holder) any money they overpaid as IPT.
The scheme can also be used by those insurers or taxable intermediaries who’re no longer registered for IPT. They’re subject to the same terms and conditions as those who’re registered for IPT.
19.4.2 When the scheme doesn’t apply
The existence of the scheme doesn’t affect your right to claim that the refund wouldn’t unjustly enrich you. If we reject your claim on the grounds of unjust enrichment, you may ask them to review this decision and, if you remain dissatisfied, you’ve the right of appeal to the Tribunal. If the Tribunal finds in our favour, the option will still be available for you to use the scheme, if you so choose.
The scheme can also apply to part of a claim. In certain cases you may not’ve passed on to your customers the cost of all the IPT charged in error, because for commercial reasons you chose to absorb some of it.
For example, you could submit a refund claim for £50,000, and agree that £30,000 was passed on to your customers, but ask to be allowed to keep £20,000 because you absorbed that amount from your profits. In such circumstances only £30,000 would be subject to the scheme. We’d consider the £20,000 claim separately on its merits.
You can also ask to be allowed to keep a part of the money which relates to business losses you’ve suffered as a result of mistaken assumptions you’ve made about the tax.
19.4.3 The scheme’s conditions
A refund under the scheme will only be made to you if you agree to these conditions:
- you must sign an undertaking in the format shown at paragraph 19.4.9 - once signed it cannot be amended
- all refunds must be made to customers within 90 days
- any residual amounts not returned to your customers after 90 days must be repaid to HMRC within 14 days from the end of this (90 days) period. No reminders will be sent. If you fail to do this HMRC will assess for the residue
- any statutory interest paid with the refund must also be passed to customers and is subject to the same terms and conditions as the refund
- you must keep records of, the
- name and addresses of those customers you intend to reimburse
- total amount of money paid to each customer
- amount of interest, if applicable, paid to each customer
- date the money was refunded
19.4.4 Who my customers are
Your customer is the person who paid for the insurance cover, and is usually the insured or the policyholder (or both).
19.4.5 How soon repayments should be made
We’d normally expect you to have the scheme ready to implement when they receive your signed undertaking and to have begun contacting customers straight away, rather than waiting until well into the 90 day period before doing this. A late start to refunding the money without good cause won’t be seen as a valid reason for extending the 90 days refund limit.
19.4.6 Statutory interest
Where the sums being reimbursed were overpaid because of an error by us, statutory interest will be paid. Any statutory interest paid under this scheme is subject to the same terms and conditions as any other money returned under the scheme and must be refunded to consumers. This is because it’s the consumer who didn’t have use of the money, not the claimant who collected it from them to pay to us.
Interest is calculated on a simple, rather than compound, basis.
Any statutory interest must be refunded in full, any residue must be returned to us within the specified time limit of 14 days.
If you’ve problems working out how much interest is due to your customers, we can provide a print out of the statutory interest calculation, which shows interest on a period by period basis. You’ll then be able to divide interest payable for a particular period into the amount overpaid for the same period. This should determine approximately what’s due to consumers for a particular period.
To make sure that you’re refunding the consumers in the agreed manner, we’ll ask to see your ‘scheme’ records. We’ll give written notice of our intention to see these records.
19.4.8 The costs of administering the scheme
Any costs you incur in administering the scheme mustn’t be taken out of the refunds. If you do we’ll assess for its return.
19.4.9 The format of your undertaking
‘I, the undersigned, can identify the names and addresses of consumers whom I intend to reimburse. I’ll repay to these persons, in cash or by cheque, all the money I receive from HMRC (including associated interest)* without any deduction, for whatever purpose, within 90 days of receiving the money and understand that I cannot use the money for any other purpose. Furthermore, any money I haven’t repaid to consumers will, without reminder, be repaid to HMRC within 14 days of the 90 days expiring. I’ll keep the necessary records as set out in the Regulations and I’ll comply with any notice given to me by HMRC about producing the records I’m required to keep.’
*Delete where not applicable.
20. Penalties and interest
20.1 Fail to register or deregister
Penalty for failure to notify where you’re required to notify HMRC that you should be registered before 1 April 2010.
If you fail to notify us of your requirement to be registered at the correct time (see paragraph 10.2) you may be liable to a penalty equal to £250 or 5% of the relevant tax, whichever is the greater. The relevant tax is the tax for which you’re liable for the period from either:
- the date you’re required to be registered to the day before we actually receive notification of your liability to be registered
- the date you’re required to be registered to the day before we became aware of your requirement to be registered
You’ll, of course, also have to pay the tax involved. You’ll not be liable to a penalty, however, if you can satisfy us (or, on appeal, a Tribunal) that you’ve a reasonable excuse for the failure.
Penalty for failure to notify where you’re required to notify HMRC that you should be registered on or after 1 April 2010.
You’ll be liable to a late notification penalty based on the same requirements to notify liability to be registered as before 1 April 2010.
However, if you discover that you should’ve notified HMRC and inform us, we’ll allow reductions for this disclosure.
The more you tell HMRC and help to establish the amount of tax due, including giving access to your records, the more the penalty can be reduced.
You can find more information on how a failure to notify penalty is calculated (or how it may be reduced) in factsheet CC/FS11 - compliance checks: penalties for failure to notify.
Penalty for failure to notify a change in registration particulars.
If you fail to notify us about a change in registration particulars, on time, you may be liable to a penalty of £250 (see paragraph 10.6).
20.2 Late payment of tax or late rendering of returns
You’re required to submit a return and pay the tax due within one month of the end of the accounting period (that’s by the ‘due date’ - see paragraph 18.1.3). If a return isn’t rendered by the due date, the tax due will be assessed. Failure to either submit a return or pay the tax due by the due date will render you liable to a penalty of -
The greater of:
- 5% of the tax due
and a penalty of £20 for every day after the due date that failure to pay the tax due or failure to render the return continues.
If you’ve chosen to pay by direct debit or credit transfer, although you’ll still be required to submit a return by each due date, you’ll be given an extra 7 days to make your payment.
20.3 Fail to notify us of ceasing to trade and that you’re no longer liable to be registered
You must notify us within 30 days of the date on which you cease to have the intention of receiving amounts, which are subject to IPT. Failure to do so will render you liable to a penalty of £250.
20.4 Fail to produce information and records to HMRC
If you fail to provide information or produce documents when required to do so by an information notice, you may be liable to a penalty of £300.
If you’ve still not provided the required items by the time HMRC have issued this penalty, you may have to pay a further daily penalty of up to £60 a day until you do.
It’s a criminal offence to conceal, destroy or otherwise dispose of any document we’ve asked for, or to arrange for it to be concealed, destroyed or disposed of.
Please take care when doing what our information notices ask. If you carelessly or deliberately provide inaccurate information or produce a document containing an inaccuracy, we may charge you a penalty of up to £3,000 for each inaccuracy. We’ll not charge you a penalty if you tell us about the inaccuracy at the time you provide the information or produce the document. If you later find an inaccuracy in a document you’ve given us you must tell us about it without delay.
20.5 Fail to appoint or nominate a tax representative
If you’re registered or liable to be registered, for IPT before 21 July 2008 and weren’t resident in the UK, you were required to appoint a tax representative (see paragraph 11.3.1). Failure to appoint a tax representative within 30 days of becoming liable, or being required by us, to appoint a tax representative will render you liable to a penalty of £10,000. You’ll not be liable to a penalty, however, if you can satisfy us (or, on appeal, a Tribunal) that you’d a reasonable excuse for the failure.
20.6 Breach a controlled goods agreement
(Walking Possession Agreement in Northern Ireland)
Note: This paragraph doesn’t apply in Scotland.
If you fail to pay any tax due, or any amount recoverable as tax due, a bailiff or an HMRC officer may visit your premises and take control of goods, for example, equipment and vehicles. This procedure allows us to remove and sell your possessions if a debt remains unpaid. Provided that you give a written undertaking not to remove or allow the removal of those possessions, we may agree to leave them in your custody and to delay their sale. This is called a walking possession agreement. If you breach the agreement, you may render yourself liable to a penalty equal to half the tax due (or any amount recoverable as tax due).
You’ll not be liable to a penalty, however, if you can satisfy us (or, on appeal, a Tribunal) that you’ve a reasonable excuse for the failure.
20.7 Liability of the insured
If you’re liable to be registered and don’t have any business establishment or other fixed establishment in the UK, elsewhere in the EU or in any other jurisdiction with whom the UK has a special arrangement for the recovery of tax, then we may serve a notice of liability on any party insured by you. The insured(s) then becomes jointly and severally liable with you to pay any subsequent assessment of tax due.
The insured party must pay the amount of tax which has been assessed, within 30 days of the date on which it was notified to them. Failure to do so will render the insured party liable to a penalty equal to 5% of the tax assessed or £250, whichever is the greater; plus a daily penalty of £20 for every day the tax is unpaid.
20.8 Do I’ve to pay interest and penalties on under-declared IPT
Penalty for underdeclarations and failure to notify an underassessment for accounting periods starting on or after 1 April 2009 where the due date is on or after 1 April 2010.
If we discover that you’ve under-declared IPT or over-claimed credit on your return you may be liable to pay a tax geared penalty based on a percentage of the amount of IPT under-declared or over-claimed.
This also applies if you fail to send in a return and then fail to tell HMRC that an assessment we send you is too low for that return.
In addition you’ll be liable to interest from the date on which the levy was due for payment until the day before the date shown on the assessment documentation. If you fail to pay this assessment on time you’ll also be liable for interest for the period from the day the assessment is notified until the day before the outstanding amount is paid in full.
You can find more information on how an inaccuracy penalty is calculated (or how it may be reduced) on factsheet CC/FS7a - compliance checks - Penalties for inaccuracies in returns or documents.
20.9 Reviews and appeals concerning penalties
By writing to us, you can ask for the application of any penalty to be reviewed (see paragraph 21.1).
20.10 Evade IPT
If you’re registrable for IPT and, for the purposes of evading IPT, you take or omit to take any action, and your conduct involves dishonesty, you’ll render yourself liable to a penalty equal to the amount of IPT evaded or sought to be evaded. You’ll also be liable to pay the amount of the IPT evaded or sought to be evaded.
If we make an assessment of tax due from you and the assessment is in respect of:
- an underdeclaration of tax made on an IPT return
- a previous tax assessment being too low
- an accounting period which exceeds 3 months and begins on the date with effect from which you were, or were required to be, registered
- an amount which has been wrongly claimed, and paid, as a credit in respect of a return premium
the whole amount assessed shall carry interest at the prescribed rate (you can obtain from us the rate currently in force). The interest will be applied from the reckonable date (see paragraph 20.11.2) to the date of payment of the assessment.
Where an amount is disclosed on an error correction notification (see paragraph 18.3) then, once we’ve issued an appropriate form, the whole amount involved is deemed to be assessed.
20.11.1 Payment before assessment
Where an assessment could’ve been made in respect of one or more of the above, if the tax due was paid before the assessment was made, then the whole of the amount paid will carry interest at the prescribed rate from the reckonable date until the date on which it was paid.
20.11.2 The ‘reckonable date’
The reckonable date is the date on which a return is required to be made for the accounting period to which the amount assessed relates. However, if the assessment relates to overpaid credit, the reckonable date is the seventh day after the day on which a written instruction was issued by us directing the payment of the credit.
20.12 When HMRC will pay interest
We’ll normally pay you interest if we make an error which has resulted in you paying too much IPT. You must apply to us in writing by making a formal claim within 4 years of our authorising payment of the amount on which the interest is payable.
20.13 What isn’t a reasonable excuse
Some penalties have a legal provision where a reasonable excuse may be considered by HMRC or the Tribunal.
A reasonable excuse cannot arise where:
- there’re insufficient funds for paying any amount
- any other person is relied on to perform any task
After the failure to notify penalty comes into force on 1 April 2010 and there’s non deliberate failure to notify in circumstances where the person had a reasonable excuse, and the excuse has ceased, they’ll be treated as having a reasonable excuse if the failure was remedied without unreasonable delay after the excuse ended.
20.14 HMRC’s general approach to late rendering and late payment of returns penalties
HMRC is a revenue department, not a penalty department and is committed to helping insurers meet their obligations in IPT. Therefore in operating the penalty system for late rendering of returns or payments, we’ll apply the following provisions:
- first defaults will attract a warning letter, which will remain valid for 12 months
- penalties for late rendering of returns or payment of tax won’t be applied unless a written warning has been issued
- any defaults within 12 months of a warning letter, or previous default, will attract liability to the appropriate penalty. There will be no increasing tariff and the defence of reasonable excuse will of course be available
- full compliance for 12 months, at any stage in the process, means a business starts again with a warning letter on the next default - as with VAT default surcharge
- late rendering of a return where payment of the full tax has been made on time won’t normally attract a penalty. A penalty will only be applied in cases of repeated refusal to render returns
- an isolated failure to render a return or pay any tax due on time won’t attract a penalty
21. Reviews and appeals
If you disagree with our decision about IPT you may be able to:
- have your case reviewed by an officer not previously involved
- you can have your case heard by an independent tax tribunal
If you opt to have your case reviewed you’ll still be able to appeal to the tribunal if you disagree with the outcome.
If you want a review you should write to us within 30 days of the date you were notified of the decision, giving the reasons why you disagree with our decision. You don’t have to write to us yourself. An accountant or advisor can do this on your behalf.
You can read about tribunals or find out how to contact the Tax Tribunal Helpline with any questions about completing the form.
Your rights and obligations
Your Charter explains what you can expect from us and what we expect from you.
Your comments or suggestions
If you’ve any comments or suggestions to make about this notice, please write to:
HM Revenue and Customs
Indirect Tax Directorate
VAT Deductions and Financial Services Team
100 Parliament Street
This address isn’t for general enquiries.
For your general enquiries please phone our helpline on Telephone: 0300 200 3700.
Putting things right
If you’re unhappy with HMRC’s service, please contact the person or office you’ve been dealing with. They’ll try to put things right.
If you’re still unhappy, find out how to complain to HMRC.
How we use your information
Find out how HMRC uses the information we hold about you.