Taxation of general insurance: insurance premium tax (IPT)
Insurance Premium Tax (IPT) was introduced in FA94 with effect from 1 October 1994. It is due on receipt of a premium by an insurer in respect of insurance risks which are located in the UK. Certain types of risk are exempt, including life assurance business, reinsurance and ships and aircraft. IPT due is likely to be recharged to the policyholder - like VAT it is borne by the policyholder but collected by the insurer. Unlike VAT, however, it is charged only at the final (retail) stage. Insurers may account for the tax on a ‘cash receipt’ basis or a ‘written premium’ basis.
The accounting treatment will usually be to exclude the IPT element of the premium from the general business technical account, and to deal with it through the balance sheet (along with any foreign premium taxes collected in respect of non-UK risks). This accountancy treatment is acceptable for corporation tax purposes.
If however an insurer chooses to include IPT in the premiums credited to the technical account, and to treat the premium tax payable as a deduction, this is also acceptable provided the method used is reasonable and adopted consistently.
Non-UK established insurers were formerly required to appoint fiscal representatives in the UK to act on their behalf in complying with their obligations. This requirement was removed in an announcement made at Budget 2008. Foreign insurers still have to register for the tax, but may choose whether or not to appoint a UK tax representative, and any such agent is no longer jointly and severally liable for tax due from the insurer. If a representative is appointed it will be a question of fact to be decided on the merits of each case whether the non-resident is trading in the UK through the representative (see GIM10060).
Details of IPT are given in the Insurance Premium Tax guidance, V2-01.