Accounting for Insurance Premium Tax: transitional accounting arrangements: monthly written contracts
Regardless of the transitional arrangements in place, where an insurer using the special accounting scheme writes ‘monthly written contracts’, tax is due at the new rate on the premiums in respect of those contracts that incept (begin) on or after the date of the rate change. This is because each monthly contract is a separate policy.
A monthly written contract is a type of policy which provides cover for a period of one month. In practice, such policies will normally be renewed by the insurer on a regular basis, but they allow insurers the option of not continuing to renew cover where there are major claims. Such contracts are most frequently found in the health insurance market.
It is important to distinguish monthly contracts from contracts for longer periods which are paid by monthly instalments. This will affect the tax point and (where there is a rate change) the rate of tax due.