Overview and the law: insurers for IPT purposes: purpose and outline of this section
This section looks at the different types of insurers in the UK, and will help you to determine who an insurer is for IPT purposes.
Within the UK there are, in terms of the way insurance is regulated, six main categories of insurers:
- Companies authorised by the Financial Conduct Authority (FCA) to conduct insurance business in the UK, as covered by the FSMA 2000 Part 4.
- Insurers who, despite the fact that they carry on insurance business in the UK, are not required to be authorised.
These insurers consist of:
- Lloyd’s members;
- Friendly Societies, the release from authorisation for Friendly Societies only applies to industrial assurance business (a special type of life business) and only where the Friendly Society is registered under the Friendly Societies Act 1992;
- Trade Unions (where the insurance is provided purely for the benefit of members);
- Employers’ associations (where the insurance is provided purely for the benefit of members);
- Banks (providing general insurance of classes 14, 15, 16, 17 and 18, which are described in Schedule 1 of The Financial Services (Regulated Activities) Order 2001, SI 2001, 544);
- Organisations providing ‘benefits in kind’ insurance primarily or exclusively. (However, following the introduction of the FSMA, some organisations now have to be authorised).
- Captive insurance companies are set up to insure (or reinsure) all or part of the risks of their parent company or mutual associations. These are normally formed where there is a lack of a suitable market so that the cost of insurance purchased by the parent can be reduced. They are usually based overseas because of advantageous tax and regulatory requirements.
- Companies that belong in other EU Member States and who are authorised by the regulatory body in that country to carry on insurance business anywhere in the EU (including the UK). (Insurers from outside the EU can now obtain an EU ‘passport’ which entitles them to carry on insurance business anywhere in the EU).
- Insurers who conduct insurance business not covered by the FSMA, including insurers located outside the UK and having no EU branch or representative, and the Government’s Export Credits Guarantee Department (ECGD).
- Companies conducting insurance business illegally who do not fall within the 5 categories above, who are not authorised by the FCA but who are required to be so authorised. They are open to prosecution by the FCA.
Under the Finance Act 1994, taxable insurance contracts entered into by an insurer are liable to IPT, whether or not the insurer is authorised by the FCA. If you become aware of an insurer who is not authorised, consult VATINS and report the case to the Deductions & Financial Services Team (see IPT08100).
The categories of insurers above are used by the FCA for regulatory purposes. One of their roles is to monitor the solvency of an authorised insurer through an annual return, in order to protect policyholders.
Taxable insurance contracts offered by any insurer are liable to IPT regardless of which FCA category the insurer falls into.