'Clamp down on unregistered insurers' - industry opens up on desired IPT review outcomes

In the wake of the government releasing its call for evidence last week on how to make the collection of Insurance Premium Tax (IPT) fairer, industry figures have been having their say.

The document lists 17 questions it wants responses to, including a group of questions around brokers switching from commission-based fees to fixed admin charges – and the tax implications. Currently IPT is collected through the total premium paid by the customer including the broker’s commission, but fixed admin fees are not subject to taxation.

However, David Williams, managing director of underwriting and technical services at AXA, said there were other reasons brokers may be shifting away from commission-based fees.

“The government wants to crack down on IPT avoidance and we appreciate that,” Williams said. “However, since the consultation is looking in particular at broker remuneration, we must stress that brokers shift from commission to fees for other reasons.

“In our experience, they do so to align with other professional services and to offer increased transparency. This helps to enhance our industry’s reputation, so we hope the outcome of the review won’t discourage this approach.”

Unregistered insurers

The review is also looking into the subject of premiums written by insurers, often foreign, that are unregistered to pay IPT.

One question suggests allowing brokers to pay the necessary IPT payment where an insurer setting the premium is unregistered.

But Williams said allowing such providers to operate and not pay IPT was unacceptable.

He said: “The idea they can accept premiums for UK business while providing poorer security – and avoid paying IPT – is shocking and we would support any moves to clamp down on this.

“We need consistency across the piece and we would welcome the closure of any such loopholes.”

Unfair rate

Chancellor Philip Hammond announced in his Spring Statement in March that there would be an operational review of IPT, and the industry has until 17 July this year to submit comments.

The government took almost £6bn from IPT in the year ending 31 July 2018 - a 22% increase from the year before, according to the accountancy group UHY Hacker Young, and a 55% increase from £3.8bn in 2016.

This followed an increase in the IPT rate from 10% to 12% in June 2017.

Biba has gone on the public record in stating it believes IPT is an unfair tax.

Biba executive director Graeme Trudgill said: “This is a highly complex subject and it is the paying customer that is affected so we will be working with our members and other trade bodies to provide HMRC with a fair and robust response.”

Zurich Municipal managing director Andrew Jepp agreed with Biba, and said that IPT is an “unfair tax that penalises people for doing the responsible thing to protect themselves from significant risk”.

He said IPT rises had significantly increased the cost of insurance for households, businesses, charities and other public sector organisations, and that the review announced in the Spring Statement was welcomed, even if it wouldn’t cover the setting of the IPT rate.

Jepp added: “This review is important with its focus on operational efficacy and fairness as we have long had particular concerns regarding the current inequitable application of IPT in certain circumstances.”

Vulnerable customers

The review is covering the administration and collection of the tax, but the ABI too signalled that it is also unhappy at the rate being charged.

A spokesperson for the ABI said: “The recent ad-hoc approach to IPT increases means they appear to have been driven by short-term budgetary considerations with not much attention paid to the consequences for consumer behaviour, so it is disappointing not to also see an indication of the wider strategy behind the tax.”

Nevertheless, James Daley, managing director of consumer group Fairer Finance, said question 14, asking about unfair outcomes arising from the tax, did present an opportunity to tell HMRC how the tax was affecting consumers.

“One of the main problems with IPT is that it hits the most vulnerable customers hardest,” Daley said. “Many young drivers, or travellers with medical conditions, already find that they are priced out of buying the cover they need - and by forcing insurers to add 12% to all their premiums, they are simply pushing more consumers into that bracket.”

He said the group wants to see HMRC provide some tax breaks for those consumers in the most vulnerable groups, who are in danger of being priced out of buying insurance.

“Insurance has an important role to play in society, and the government needs to ensure that its policy does not unintentionally exclude people,” he added. “As things stand, IPT has been a hindrance to opening up access to insurance - and now is the time to take a fresh look at that.”

Travel

Protection comparison site Active Quote said the charges on travel premiums were particularly unfair, claiming they are charged at a higher rate of 20% rather than 12%.

The company is calling for a reduction, or exemption, to IPT for travel premiums, which it said last year contributed £130m.

Rod Jones, head of partnerships at Active Quote, said: “It’s great news that the Chancellor has announced a review looking into this tax, but what is concerning is that HMRC has said that it will not consult on the current rate of 12%.

“We had hoped that this call for evidence would help to make the IPT levy fairer and more transparent for the consumer, but with that announcement we’re not so sure. 

“It is a tax that may affect consumers who can least afford it, for example car insurance is higher for young drivers who may have less income or, in the case of travel insurance, premiums are already higher for people with medical conditions or those over a certain age.

“IPT is calculated as a percentage of the insurance cost, so those with higher premiums are increased further due to IPT, ultimately paying over the odds again. The whole process needs an overhaul and we would hope for the ultimate exemption of travel insurance from IPT.