Tax avoidance is the target

The government defends its new measures on Insurance Premium Tax (IPT) as a means of stopping tax avoidance. Under the current arrangements, it claims that certain insurance distributors are avoiding IPT by designating part of their income as administration fees rather than premium. Now the loophole has been closed by making all fees subject to IPT – but this is a drastic measure with a large number of unintended consequences. Biba estimates that brokers could have to spend tens of thousands of pounds altering their documentation and systems. Meanwhile there are huge questions over who will collect the tax and pass it on the revenue. The government is currently telling trade associations that insurers will be responsible for this, but it is unclear how. Also, this will mean new systems and all the costs they entail for insurers as well as for brokers.

All in all, it’s a big mess and, as Biba’s Eric Galbraith rightly points out, smacks of using a hammer to crack a nut. When cracking down on the tax avoidance, for obvious reasons, the government does not consult on its measures before announcing them. But in this case, it really does need the input of the industry to understand what its actions will mean in practice for businesses that currently have a whole host of issues to contend with.

Biba and the ABI are working hard behind the scenes to get clarity and cooperation from the government. They need the support of the industry because, in 2010, this is not going to go away.

See story: Industry angry over lack of consultation on IPT changes