In a move that could increase the Treasury’s annual revenue by up to £1.75 billion, the Chancellor announced in the Summer Budget that the standard rate of UK Insurance Premium Tax (IPT) will increase from 6% to 9.5% from 1st November 2015.
IPT is a tax on general insurance premiums and there are two rates: the standard rate applying to products such as home and contents, motor and private medical and cashplan insurance. There is a higher rate of 20% that applies to travel, mechanical/electrical appliance insurance and some specialist vehicle insurance, although this has not been affected by the change.
The new standard rate will be due on premiums received on or after 1st November 2015, except where insurers operate a special accounting scheme. In that case, the new rate is only applied to premiums relating to risks covered by the terms of a contract entered into after 1st November 2015; however, from 1st March 2016, the new rate applies to all premiums, regardless of when the contract was entered into.
Insurers are concerned about whether this represents part of a gradual move towards aligning the IPT rate with the VAT rate of 20%, something that is quite common in other EU member states.
In terms of the affect of this change on employers, we expect most medical and cashplan insurance providers to simply add the additional tax to their normal rates, meaning that most clients with these schemes should expect to be offered renewal terms with a larger than usual increase at the next renewal. In turn this will increase an employee’s taxable benefit as IPT is included in the employee’s P11D liability figure. It is therefore essential that all options are considered, including possibly potential alternative insurers and policy structures to ensure you minimise the affect of the IPT increase wherever possible.
Also, if you have been considering establishing a new medical insurance or cashplan scheme for your employees you may wish to consider implementing these prior to 1st November 2015 whilst IPT at it’s current lower rate.
If you would like a no cost, no obligation review of your existing benefit schemes and/or wish to discuss the options around establishing a new employee benefit scheme please contact us on 01883 332260.
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change. This is information is not provided as advice or a recommendation.