Insurance Premium Tax (IPT)

Most UK insurance policies are subject to IPT, but many insurance intermediaries and introducers don’t realise the significant cost and risk which the tax presents.

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Following a number of increases over a relatively short period of time, the standard rate of UK IPT is now a hefty 12%, with the higher rate of IPT being 20%. This, together with increasingly tighter margins, means a significant proportion of this IPT cost may well be passed to the policyholder.

How we can help you with IPT

We have extensive experience in helping our clients across all aspects of IPT, including:

  • Working with insurance intermediaries to identify and achieve significant IPT cost savings
  • Managing IPT risk – including reducing bordereau and point of sale risks and advising on the IPT and VAT aspects of intermediary/underwriter agreements
  • Undertaking remedial work where errors have arisen, including considerable success with mitigating or eliminating penalties and interest
  • Working with policyholders to reduce their insurance cost by reducing their IPT cost
  • We can undertake a review of the policies which are held and liaise with insurance intermediaries and insurers to find and implement IPT cost savings
  • Advising on IPT issues more widely

For more information on how we can help you with IPT, speak to a member of our team.

Frequently asked questions about IPT

I’m an insurance broker arranging car and home insurance policies. Why would I be suffering any IPT cost – I just collect the IPT and pass it on to the underwriter?

This can be answered by looking at the following example:

  • Over 12 months, B Ltd, working on a net rated basis, arranges insurance policies with GWP of £11,120,000.
  • B Ltd pays £8m net premium to U Ltd, plus IPT of £1.2m (which U Ltd pays to HMRC).
  • B Ltd therefore retains commission of £2,000,000.
  • If B Ltd Is able to reduce the IPT due by 30%, then they pay £8m to U Ltd plus IPT of £840k. This means that B Ltd receives £2,360,000. B Ltd can either retain the extra £360k or pass some or all of the saving to the policyholder.

As an insurance broker, how can I achieve this and wouldn’t it be considered aggressive?

There are a wide variety of ways in which IPT can be reduced - none of which are considered aggressive.  One example that can potentially work involves distinguishing the elements of the insurance premium which relate to the insured risk from the elements which relate to services provided alongside the risk cover, and allocating premiums to different risks as efficiently as possible.

I’m an insurance broker, not an underwriter so why would IPT be a risk for me?

Say in the above example, B Ltd makes an error on the bordereau, stating that the IPT due is £84k instead of £840k.  HMRC assess U Ltd for IPT of £756k, a penalty of £225k and interest.

As is almost invariably the case with intermediary/underwriter agreements, under the terms of its agreement with U Ltd, B Ltd is liable to reimburse U Ltd for all these amounts.

Another risk area is anti-avoidance legislation: it’s relatively easy for an intermediary to be caught by legislation around vehicle, domestic appliances, and travel insurance – in which case IPT will be due at 20% and the intermediary may be liable to register for IPT.

My business has a very large insurance bill, including IPT. Can I reduce this IPT cost?

From the perspective of the policyholder, it is essential to see where the IPT cost is arising and what IPT cost savings the intermediary or insurer can implement, with a view to a proportion/all of these being passed to the policyholder.