Accounting for Insurance Premium Tax: transitional accounting arrangements: premiums paid on a monthly or other regular basis
Where a concessionary period has been granted and an insurer using the special accounting scheme accepts payment in instalments for an annual or other fixed term policy incepting (beginning) before a rate change, the lower rate of tax is due on premiums written during the transitional period.
Say an insurer using the cash receipt method of accounting receives payment in instalments for an annual or other fixed term policy incepting before a rate change, each instalment received before the implementation date is liable to tax at the old rate and those received after the implementation date are liable to the new rate. If the insured party chooses to prepay the instalments before the rate change to avoid paying the new rate of tax you should check that the anti-forestalling provisions (at IPT07840) do not apply and, in particular that:
- the contract incepts before the rate change;
- the contract is for a period of not more than 12 months;
- the premiums are paid in advance in their entirety, rather than just the tax.
Tax credit on return premiums should be claimed at the IPT rate applicable to the original premium.