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HMRC internal manual

Insurance Premium Tax

Accounting for Insurance Premium Tax: the cash receipt accounting method: deductions from salary for insurance

There is one exception to the general rule that payment to any person acting as an intermediary is treated as payment to the insurer. Originally this was brought in under an extra statutory concession and applied only to salary deductions for health insurance.

The ESC was legislated for under section 30 of the Finance Act 1997, adding sections 72(7A) and 72(8A) to the Finance Act 1994, and brought in all payroll deductions for all insurance and not just health insurance. The impact of this legislation is to waive the usual tax point rules for insurance premiums paid by payroll deductions. Sections 72(7A) and 72(8A) of the FA 1994 state:

(7A) Where any person is authorised by or on behalf of an employee to deduct from anything due to the employee under his contract of employment an amount in respect of a payment due under a taxable insurance contract

subsection (7) above shall not apply to the receipt on behalf of the insurer by the person so authorised of the amount deducted.

(8A) Where

by virtue of subsection (7A) above

subsection (7) above does not apply to the receipt of an amount by a person and the whole or part of the amount is referable to commission to which he is entitled-

(a) if the whole of the amount is so referable

the amount shall be treated as received by the insurer when it is deducted by that person; and

(b) otherwise

the part of the amount that is so referable shall be treated as received by the insurer when the remainder of the payment concerned is or is treated as received by him. | | ———————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————— |

The tax point for insurance premiums deducted from an employee’s salary is the date on which the insurer (or any intermediary) receives the premiums from the employer.