In his Summer Budget, the Chancellor announced a rise in Insurance Premium Tax (IPT) from 6% to 9.5% from November.
Moore Stephens considers the transitional arrangements concerning the rate of IPT to be charged to policies whose cover spans the date of the rate rise. The following dates apply:
Date of announcement: 8 July 2015
Date of rate rise: 1 November 2015
Special Accounting Scheme ‘Concessionary Period’: 1 November 2015 – 29 February 2016
Insurers may adopt either the cash receipt method or the Special Accounting Scheme (SAS) for determining the IPT tax point.
Cash receipt method
The tax point for IPT is when a premium is received by the insurer (or an intermediary collecting it on the insurer’s behalf), and the following applies:
• Regardless of when a policy incepted, any cash receipts, including Additional Premiums (APs) received on or after 1 November 2015 will be liable at the 9.5% rate.
• Tax credits on Return Premiums will be repayable at the same rate when first written
• If a payment is received between 8 July and 31 October 2015, but only relates to cover incepting on or after 1 November 2015, the IPT rate will be 9.5%.
Special Accounting Scheme (SAS)
Generally, the tax point under the SAS is when an insurer writes a premium as due in his records of account. The point of the four month concessionary period is to help with the renewal process and also the delay between an intermediary placing a risk and reporting it later to the insurer.
The following transitional arrangements apply:
• Policies incepting before 1 November 2015, where premiums are written as due between this date and 29 February 2016, will be accounted for at the 6% rate.
• Any premiums written from 1 March 2016 will be at 9.5%, regardless of when the policy incepted.
• Monthly premiums – if these are separate and successive contracts of insurance, then the 9.5% rate will apply to the first premium written on or after 1 November 2015.
• Payment by instalment – if the annual premium is written as due before 1 November 2015, then the 6% rate will apply. (It is common practice for personal lines insurers to collect the full amount of IPT with the first payment by the policyholder).
• Renewals notices – clearly, each insurer will have its own procedure for advising customers (and intermediaries) of the IPT rate rise, taking account of the transitional arrangements. The deadline for systems changes will be when an insurer sends out renewal notices for policies commencing on or after 1 November 2015.
• Multi-year contracts- if a premium is received between 8 July and 31 October 2015, for cover that extends past 1 November 2016 then the proportion that relates to cover on or after this date shall be taxable at the 9.5% rate. (This is an anti-forestalling provision that will not apply where it is usual for an insurer to write cover exceeding 12 months.)
For further information, please contact Nick Warner.