Calculating the value of the premium: separate contracts: how the anti-avoidance conditions apply to amounts charged under specific separate contracts
Mid-term adjustments (‘MTA’), cancellation fees
Although these charges are often made under separate contracts it is unlikely that they will meet conditions A to D of IPT05180 unless they are charged in connection with a commoditised product. Most of these charges are made for administration in respect of specific changes required by the insured. Where the charges are made under a contract which is not a requirement of the taxable insurance contract, e.g. a contract under the Consumer Credit Act, condition B will not be met. Where any changes to the taxable insurance contract require a re-assessment of the risks, condition D will not be met. Where there is any refund to the customer it must be remembered that a charge caught by this measure is premium and the IPT should be accounted for as with any other premium refund.
Premium for insurance add-ons should be subject to IPT in the normal way because these are taxable insurance contracts. However, HMRC is aware of schemes whereby most of premium for the add-on insurance is charged under a separate contract to the taxable insurance contract solely to avoid IPT. The insurer accounts for IPT on only a small proportion of the premium charged. Such arrangements are likely to be caught as conditions A to D of IPT05180 will probably be met. Where an insurance add-on is provided by one insurer any fee charged in relation to that add-on is premium due to that insurer. Where add-ons are provided by a number of insurers and the fee for the separate contracts cannot be specifically identified to one insurer it should be apportioned across the add-ons on a basis that can be demonstrated by the parties concerned to HMRC that IPT has been paid in relation to the charges made.
Added value accounts
These accounts, sold by High Street banks, provide their customers with benefits, some of which are insurance. Insurance cover (including any third party fees charged in connection with that cover) bought in by the bank may be charged on to its customers at or below cost under the bank account fee arrangements. If so, there is no margin or additional fee charged by the bank to its customers that would fall to be liable to IPT under the new provisions.
IPT will be due from insurers, if conditions A-D of IPT05180 are satisfied, on any fees charged by third party insurance administrators/brokers that are detailed in the contractual arrangements between the administrator and the insured under which each specific insurance cover is provided and are paid for by the customer via the bank account fees and passed onto the administrator/broker by the bank.
Deferred payment charges
Deferred payment charges are caught within HMRC’s interpretation of *premium** *at S72(1)(e) although it is accepted, as stated above, that these charges are often made under a separate contract, such as one provided for under the Consumer Credit Act. If deferred payment charges satisfy all the conditions A to D of IPT05180 they will be caught by this measure. Where additional amounts are charged under contracts provided for under the Consumer Credit Act, however, HMRC accept that the payment charge falls outside the scope of IPT when the amount charged and notified to the insured under the contract is the same as the amount charged and notified to the separate authority which regulates such charges. This is because we see such charges as relating primarily to the provision of credit and not to the provision of the insurance itself.
Fees charged in connection with contracts liable to the higher rate of IPT
The higher rate of IPT applies to all travel insurance and to certain insurance sold with cars and domestic appliances (see IPT04900). It applies to the insurance premium and to any fees charged by intermediaries under separate contracts in connection with higher rate insurance contracts, which may render the intermediary liable to register as a Taxable Intermediary and account for higher rate IPT on those fees as if that intermediary were themselves the insurer. The anti-avoidance provisions outlined in IPT05160 apply to standard rated insurance contracts only and do not affect the requirements relating to fees charged in connection with contracts liable to the higher rate of IPT, which are outlined in IPT04960 and IPT06800.