beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

VAT Civil Penalties

Insurance Premium Tax: Calculation and notification of a penalty: Failure to pay by the insured and Notice of Assessment

Please note: penalties under Schedule 7 Finance Act 1994 for failure to notify liability to register have been replaced by the Failure to Notify penalty introduced by Schedule 41 Finance Act 2008.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note: penalties under the Finance Act 1994 for failure to provide information and failure to produce records have now been replaced by penalties under Schedule 36 Finance Act 2008 where HMRC have requested information or documents on or after 01 /04/2010.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.

If an overseas insurer is liable to be registered for IPT but does not have a fixed establishment within the UK, nor a tax representative approved by HMRC, we may exceptionally serve a notice of liability on the insured person(s).

The insured then becomes jointly and severally liable with the insurer to pay any subsequent assessment of tax due. The insured must pay the amount of tax which has been assessed within 30 days of the date on which it was notified to him.

If he fails to do so the insured may be liable to a penalty. Further guidance on the rules governing the issue of liability notices can be found in V2-1 Insurance Premium Tax.

Level of Penalty

  • 5% of the tax assessed or, if greater, £250, and
  • a daily rate penalty of £20 per day for every relevant day that the tax remains unpaid.

Issuing a penalty

VAT Financial and IPT Team (part of CT & VAT) closely monitor any case where a liability notice is issued to the insured. They should therefore have already been consulted before you reach this stage. If they have not you will need to talk to them before you take any further penalty action.

Issuing this type of penalty is rare. However if a case does arise the rules covering the issue of liability notices and assessments will need to be checked in order to confirm that they have been correctly applied. If they have you will need to consider whether the insured person has a reasonable excuse, see VCP11632.

Unlike other IPT penalties the insured person is only considered to have a reasonable excuse if they can satisfy us, or on appeal a Tribunal, that they have taken all reasonable steps to ensure that the tax assessed was paid within the time required. However even if you consider that the insured person does not have a reasonable excuse you may still wish to exercise your discretion not to issue the penalty, see VCP11631.

If you decide that a penalty should be issued, you will need to assess it by letter as the insured person will not be registered for IPT in relation to this insurance. The following is a suggested format for a letter, see VCP11644.

You will need 4 copies

  • 2 copies to be sent to the insured together with a reply paid envelope addressed to the Birmingham Tax Accounting Centre. One copy of the letter should be headed “Remittance Advice” in red.
  • 1 copy to be forwarded to the Birmingham Tax Accounting Centre.
  • 1 copy to be retained in local office records.

You will then need to monitor payment and if necessary issue a further assessment for the daily rate penalty, for a suggested format of the letter to send, see VCP11645.

Again you will need 4 copies of the letter as above. However, although the law provides for the daily rate penalty to be applied to each day following due date, normally you should only issue such a penalty if the tax assessment remains outstanding for a further 30 days after the initial penalty assessment has been issued. If at any stage the penalty is withdrawn see VCP11663.