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HMRC internal manual

VAT Civil Penalties

Insurance Premium Tax: Why a penalty arises: What is Insurance Premium Tax

Please note: penalties under Schedule 7 Finance Act 1994 for failure to notify liability to register have been replaced by the Failure to Notify penalty introduced by Schedule 41 Finance Act 2008. The Failure to Notify penalty applies where an obligation to notify liability to register for IPT occurs on or after 01/04/2010. Penalties under Schedule 7 Finance Act 1994 will continue to apply where an obligation to notify occurs before 01/04/2010.

Please see the Compliance Handbook CH70000 for more information about the Failure to Notify penalty.

Please note: penalties under the Finance Act 1994 for failure to provide information and failure to produce records have now been replaced by penalties under Schedule 36 Finance Act 2008 where HMRC have requested information or documents on or after 01 /04/2010. If HMRC requested information or documents before 01/04/2010 the Finance Act 1994 penalties will continue to apply.

Please the Compliance Handbook CH20000 for more information about information and inspection powers.

Insurance Premium Tax (IPT) is a tax on general insurance premiums. There are two rates

  • A standard rate of 5 per cent.
  • A higher rate of 17.5 per cent for travel insurance and some insurance for vehicles and domestic/electrical appliances.

Most long term insurance is exempted from the tax, as is reinsurance, insurance for commercial ships and aircraft and insurance for commercial goods in international transit.

Premiums for risks located outside the UK are also exempt, but they may be liable to similar taxes imposed by other countries.

A person will have to register and account for IPT if they are

  • Receiving taxable insurance premiums as an insurer or intend to receive premiums as an insurer, or
  • Someone who charges the insured an insurance related fee in respect of a higher rate contract (a taxable intermediary).

A person does not need to register and account for IPT if they are receiving insurance premiums as an insurer wholly in relation to exempt insurance contracts.

If you are receiving insurance premiums as an insurer partially in relation to exempt insurance contracts and partially in relation to taxable contracts then there may still be no requirement to register and account for IPT.

The registration and accounting for IPT is covered by the law, see VCP11613.

To determine if a penalty will arise, see VCP11612.

There are no implications under the Human Rights Act for Insurance Premium Tax penalties, see VCP10160.