HMRC internal manual

Insurance Premium Tax

IPT05840 - Calculating the value of the premium: types of contract covering exempt and taxable risks: methods of apportionment

Section 13 of Notice IPT1 provides guidance on apportionment in cases involving taxable and exempt supplies. Section 13.2 of Notice IPT1 suggests possible methods of apportionment in particular circumstances, which are reproduced below. These are only examples and deal with policies which relate to both UK and non-UK risks. Insurers should only use these formulae where they produce a just and reasonable apportionment. Insurers are free to use any other formula as long as the method they use produces a just and reasonable result. We would expect there to be a close relationship between the risk covered and the apportionment method used. However, where an individual premium is quoted for each risk covered under the policy then an apportionment is not required.

Policies covering buildings Taxable element of the policy = Value of UK property insured ÷ Value of all property insured This formula can be used where a policy covers buildings located both inside and outside the UK.
Policies covering vehicles Taxable element of the policy = Number of insured vehicles registered in the UK ÷ Total number of vehicles insured In the unusual situation where a vehicle is not registered the liability is determined by where the policy holder is located. A specific adjustment may therefore be required to take account of these vehicles in the calculation.
Policies covering other world-wide risks Taxable element of the policy = Turnover of UK establishments ÷ Turnover of UK and non-UK establishments\nOr for employees policies:\nTaxable element of the policy = Number of employees (or directors and officers) located in UK ÷ Total employees (or directors and officers) This formula can be used for policies covering:\n- product and public liability;\n- business interruption, professional indemnity and product tamper.\nThis formula can also be used for policies covering:\n- directors’ and officers’ and employers’ liability;\n- errors and omissions;\n- employers’ policies covering employees for personal accident;\n- Fidelity guarantee cover (held by an employer to cover against theft by employees).
Policies covering cargo transit Taxable element of the policy = Number of intra-UK journeys ÷ Number of worldwide journeys This formula can be used if the policy covers journeys worldwide including some which are totally within the UK (where the related premium is taxable).