Accounting for Insurance Premium Tax: transitional accounting arrangements: contracts providing cover for a period exceeding 12 months
If a taxable premium is received or written after the date of announcement of a rate change but before the implementation date and the period of cover begins before the implementation date and ends on or after the first anniversary of the change, then an apportionment must be made to calculate the IPT due.
The IPT due on that proportion of the premium attributable to the period from the inception date to the anniversary of the rate change can be calculated at the old rate. The IPT due on that proportion of the premium attributable to the period from the anniversary of the rate change must be accounted for at the new rate. The tax point for the second element of the premium will be deemed to be the implementation date.
- The announcement of a rate change is made on 26 November 1996.
- A premium relating to a contract incepting on 1 January 1997 and providing cover until 31 December 1999 is written into the insurer’s records (or received if the insurer is using the cash receipt method of accounting for tax) on 25 January 1997.
- The insurer can account for IPT of 2.5% on the proportion of the premium attributable to the period 1 January 1997 to 30 March 1998. The tax point will be 25 January 1997. He is liable to account for IPT at 4% on the proportion of the premium attributable to the period 1 April 1998 to 31 December 1999. The tax point for that proportion of the premium will be deemed to be 1 April 1997.
Again this anti-forestalling concession will not apply where it is normal for the insurer to provide cover for a period exceeding 12 months.
Although this contract incepted before 1 April 1997, the transitional period described in IPT07805 for users of the special accounting scheme has been disapplied from the proportion of the premium deemed to be written on 1 April 1997 because the premium is caught by the anti-forestalling rules. This is achieved by deeming the contract to have been made on the date of the rate change (see section 67B(5) of the Finance Act 1994 as inserted by the Finance Act 1997).