In the UK Government’s 2017 Autumn Statement, it was announced that the standard rate of Insurance Premium Tax (IPT) would increase from 10% to 12%. The change took effect from 1 June 2017 for premiums where the period of cover begins on or after that date.
The new rate does not apply to all insurance premiums – it only applies to premiums received under general insurance policies.
It affects all insurers across the industry, and understanding the changes will help you predict your premium cost in the immediate future.
Let’s break it down:
- All new business and renewals with a term start date on or after the 1 June 2017 will be charged at 12%
- New business and renewals with a term start date prior to 1 June will be charged at 10%
- All premiums processed on or after 1 June 2018 – the backstop date – will be taxed at the new rate of 12%, regardless of when the cover for the risks under the insurance policy began
Will the cost of my insurance go up?
- The tax rise will be passed on to consumers
- The new rate will only apply to premiums received under general insurance policies such as motor, property, liability or medical insurance. These were previously subject to IPT at the standard rate of 10%
- Travel insurance, insurance sold with car and domestic appliances and other types of insurance which are already subject to the higher rate of 20% will not be affected
What happens if I made a mid-term adjustment (MTA)?
- If the MTA results in a reduction in premium and a refund is required, IPT will be credited at the rate applied to the premium being adjusted
- If the MTA results in an additional premium being charged for a policy with term start date before 1 June 2017, where the additional cover starts before the backstop date and which is processed up to and including 31 May 2018, it will be subject to the 10% IPT
- If the MTA results in an additional premium being charged for a policy with term start date on or after 1 June 2017, it will be subject to the 12% IPT
- Any additional premiums processed after 31 May 2018 irrespective of policy or cover effective date will be subject to the 12% IPT
Insurance Premium Tax has effectively doubled since November 2015, when it rose from 6% to 9.5%. It was then increased to the current rate of 10% in October 2016.
For more information, or if you have any queries, you can contact the C&M Insurance team on 01708 764 000