Accounting for Insurance Premium Tax: the cash receipt accounting method: delays in bringing tax to account
There are, broadly, two ways in which there could be delays in bringing tax to account using the cash receipt method:
- where cash is received on an insurer’s behalf by a broker or other intermediary, and the broker delays notifying the insurer of the transaction (remember that receipt on behalf of an insurer equates to receipt by the insurer).
- where cash is actually received by an insurer but their accounting system or other procedures are slow to bring the tax to account.
- Cash received by broker on 1 January.
- Broker reports business calendar quarterly in arrears - so notification is sent to insurer in early April - about 100 days after cash receipt tax point.
- ABC Insurance - (on stagger 1, Mar, Jun, Sep, Dec).
- Payment made by customer’s standing order on 1 March. Payment received on 3 March. Bank statement for month of March received 5 April.
- Transactions paid by standing order are entered in books by accounts staff in say, mid-April.
- Transaction thus recorded at mid-April, about 45 days after actual receipt of cash.
- Tax declared on return for period ending 30 June.
In practice, if delays did not bridge two separate tax periods, we would confine our action to drawing these shortcomings to the attention of the insurer, and suggesting that they take steps to improve procedures.
Where it is found that an insurer using the cash receipt method has declared IPT in a period later than that in which it was properly due, the insurer should be assessed, if the revenue involved is significant. For example, in Example 5 above, the tax will be declared on the June return when it is clearly due on the March return. Assessment action would be appropriate in such a case - subject to the guidance on assessment limits and small errors in IPT09100.