Insurance Premium Tax (IPT): Premium Splitting
The measure
Draft legislation was announced in the 2009 Pre-Budget Report to close a
perceived IPT legislative loophole involving certain insurance 'administration
fees'. This followed the High Court's decision in the case of Homeserve
Membership Limited, which held that 'unbundled' services connected with a home
insurance product were not subject to IPT under the current law.
The original draft legislation has now been amended following consultation with
industry representatives, and is now more closely targeted.
The measure only affects non life personal lines insurance and has been narrowed
to apply only to fees in relation to what could be described as 'commoditised
insurance'. IPT will apply to fees charged to private individuals under
contracts separate to the insurance contract where certain criteria are met.
These fees will be considered part of the premium for IPT purposes and the
insurer will be required to account for IPT on them in line with its normal IPT
accounting procedures.
Who will be affected?
Businesses that charge fees to an insured person in connection with certain contracts of insurance as outlined above and the insurers who underwrite these 'commoditised' insurance products.
When?
The new legislation is effective from today and therefore has effect in relation to payments made on or after 24 March 2010.
This measure is not unexpected and is an improvement on the previous draft
legislation announced in the PBR. It has a narrower scope and should not affect
traditional home and motor insurance or specialist insurance where the charge
for insurance is normally dependent on the individual's circumstances.
IPT accounting remains the responsibility of insurers and the separate fees
caught by the new legislation will need to be included in the IPT returns of the
insurer, and the correct tax point for these fees will need to be identified.
Although HMRC have not mentioned it, it should be implied that those businesses
that have accounted for IPT under the draft legislation from 9 December 2009
would be entitled to a refund for any additional IPT paid in relation to the
period before 24 March 2010.
