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HMRC internal manual

Insurance Premium Tax

From
HM Revenue & Customs
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Maintaining the IPT Register: registration of taxable intermediaries: examples of how an intermediary could become registered

Example 1

A retailer of electrical goods selling insurance to cover those goods does not receive commission from the insurer but instead charges a fee under a separate contract from the insurance contract to the insured. This fee is disclosed to the insured. The insurer will account for IPT on the premium they receive. The fee charged by the intermediary will be exempt from VAT. Under section 52A(2) of the Finance Act 1994, as inserted by the Finance Act 1997, the fee will be deemed to be a premium for IPT purposes and the intermediary will be required to be registered for IPT.

In example 1, the intermediary is registrable because the following five conditions (set out in section 52A(1) of the Finance Act 1994) are met:

  • he has charged a fee in relation to a higher rate contract;
  • the fee is charged at or about the time the contract is effected;
  • the fee is in connection with an insurance related service;
  • the fee is charged to the insured;
  • he is a taxable intermediary.

 

Example 2

The same situation as in example 1. The intermediary does not receive commission from the insurer but instead charges a separate fee to the insured. This separate fee is not disclosed to the insured.

The insurer will account for IPT on the premium they receive. Under Group 2, Schedule 9 of the VAT Act 1994 (as amended by the Finance Act 1997) the fee charged by the intermediary will be subject to VAT at the standard rate. As with example 1, the fee will also be deemed to be a premium for IPT purposes (because it satisfies the 5 conditions outlined above) and the intermediary will be required to account for IPT on the same amount.

We do not expect this situation to occur often, and any cases should be referred to Deductions & Financial Services Team.

 

Example 3

An intermediary receives commission out of the gross premium due under a higher rate contract of insurance. The insurer accounts for IPT on the gross amount. The intermediary is making VAT exempt supplies of insurance related services. As they have not charged a fee under a contract separate to the contract of insurance they are not required to register for IPT.