Insurance Premium Tax (IPT) hit the headlines in June 2017, with the standard rate rising from 10% to 12%.
The most significant consequence of this increase was an increase in premiums for consumers and businesses, leading the Association of British Insurers to warn that these tax rises only serve to punish responsible people who have done the right thing by buying cover for their cars and homes.
Just over a year later, and it has been revealed that this controversial tax hike has swelled the government’s coffers by an additional £808 million – 19% higher than the government’s projection of £680 million*. The total IPT income for UK plc for the year ending March 31st 2018 was an extraordinary £5.94 billion.
So, what is Insurance Premium Tax and who does it affect?
Insurance Premium Tax (IPT) is a tax that is applied to the majority of general insurance policies. This is because VAT is not applicable on insurance products, so the Government require IPT to be paid instead.
There are two rates:
• a standard rate (12%)
• a higher rate – for travel insurance, mechanical or electrical appliances insurance and some vehicle insurances (20%)
The IPT should be listed in your insurance quotes.
Who has been affected by the rise in Insurance Premium Tax?
IPT is applied to the majority of general insurance policies for both consumers and businesses. If you’re a business owner, IPT will appear on your public and employee liability policies, as well as company car insurances and private medical care.
Unfortunately, those who can afford it the least have been the hardest hit by the increase in IPT. Small businesses and sole traders are particularly affected by inflated premiums and should take advice from a professional broker to ensure they’re adequately covered, before making the decision to cut back on policies. An experienced broker will assess your level of risk, ensure you’re not paying for unnecessary insurance and help you get the best price possible.
Is Insurance Premium Tax likely to rise again?
The insurance industry spoke out about future rises in IPT and to date it has remained at 12%, but with uncertain times ahead, there’s no guarantee it will stay that way. The Government still argues that the IPT rates in Britain are below those of other countries.
What do we think about the increases in Insurance Premium Tax?
Simon Gubbins, Managing Director at Robison & Co., said: “Investing in insurance cover is a responsible way of protecting yourself, others and your assets, and we don’t believe consumers or businesses should be penalised with rising premiums caused by unnecessary tax increases. These rises just discourage an uptake in insurance, leaving consumers and businesses vulnerable.
Businesses in particular face increasing challenges and risks all the time and the insurance industry evolves to provide policies that will protect organisations if the worst happens. Cyber insurance for example, is a relatively new type of cover that is available following the influx of cyber-attacks and data breaches we’ve seen over the past couple of years, and businesses with these policies in place could find it makes all the difference in the event of an incident.
Rising premiums simply make insurance less accessible to those who need it and forces individuals and businesses to increase their risk by not having appropriate cover in place. Businesses should consider a review of their insurance policies with a professional broker, this will ensure you’re only paying for the cover you need and will reduce the burden of increased IPT by reducing your premiums.
We were pleased to see no further increases in IPT when the last budget was announced and hope that the voices of those who have spoken out against the steadily increasing IPT are still being heard loud and clear!”
Robison & Co is an owner-managed insurance brokerage, offering advice on all areas of business and personal insurance, as well as independent financial advice on investments, mortgages and pensions.
For an insurance quote, or a review of your existing insurance policies, please contact us on: 01730 265500 or email hello@robison.co.uk
*Statistics from national accountancy group, UHY Hacker Young
