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UK To Strengthen Insurance Premium Tax Rules

Tuesday, November 10, 2020

On November 5, 2020, HM Revenue and Customs issued a consultation on proposals to improve the administration of Insurance Premium Tax (IPT) and prevent unfair outcomes.

This consultation is about possible measures intended to improve IPT, to make it easier for both the industry and HMRC to administer.

It is also intended to seek views on specific measures that can be taken to prevent certain types of IPT avoidance and evasion. The consultation does not consider the rates of IPT or the exemptions to IPT.

Within the consultation, HMRC proposes, among other things, a code of conduct for brokers, who would undertake to pass to HMRC details of any unregistered insurer writing business which is liable to IPT, to tackle the issue of insurers failing to register for IPT. It also considers making brokers jointly and severally liable for IPT.

The consultation also considers action where an insurer creates an "in-house broker" within their corporate group. Under this arrangement, this broker charges customers an administration fee under a separate contract and the insurer lowers the amount of the premium by the same or a similar amount. The administration fee is not subject to IPT, although the customer may see a similar final price for their insurance.

By charging an administration fee under these types of arrangements, the group, including the insurer and broker, is able to reduce its overall liability to IPT.

One method of preventing this avoidance, considered in the consultation, would be to make administration fees liable to IPT where they are charged by brokers who are connected to an insurer. Alternatively, the consultation looks at extending IPT to such administration fees.