Budget backtracks on IPT following industry lobbying

The insurance industry welcomed news at last week’s Budget that controversial changes to insurance premium tax (IPT) will not be backdated.

Those firms that still have to pay IPT on arrangement fees, following the government’s move to narrow the scope of its controversial changes to the tax, will be liable for payments from Budget day itself (24 March).

The original draft legislation said that liability would apply retrospectively from 9 December, the date of last year’s pre-Budget report when the extension was originally put forward.

Last week’s announcement means many brokers that faced having to pay the tax under the original proposals will no longer be liable.

The changes were made following heavy lobbying by Biba and the Institute of Insurance Brokers (IIB).

Biba head of compliance and training Steve White said: “This is a good result for our members and it addresses the Revenue’s concerns.”

IIB chief executive Barbara Bradshaw said that while last week’s announcement was very welcome, those small brokers that had been collecting IPT since last December would face an administrative headache in returning these sums to their customers.

Broker Network executive chairman Grant Ellis congratulated Biba and the IIB on the joint lobbying work undertaken by the two organisations between the pre-Budget report and last week’s Budget.

Following last week’s announcement, IPT will not be levied on fees charged by intermediaries where the level of premium has been arrived at without a comprehensive assessment of the customer’s individual circumstances.

The tax will also not apply when the customer cannot negotiate the broker’s contract.

The changes announced last week mean that arrangement fees on personal lines like household and motors, which tend to be determined on a lump-sum basis, will generally not be liable for IPT.

In addition, the government has confirmed that insurers rather than intermediaries will continue to be responsible for paying the tax.

The change to the IPT legislation was prompted by a 2008 Court of Appeal case between Homeserve and the HM Revenue & Customs, which highlighted the issue of ‘premium splitting’, whereby administration fees are separated from the premium in order to avoid IPT.

The Budget 2010: how it affects you

• The rate of capital gains tax will remain unchanged at 18% despite pre-Budget speculation that it would rise to bring it into line with higher income tax rates.
• The entrepreneurs’ relief rate for capital gains tax was extended from £1m to £2m of gains, with effect from April 2010.
• The government announced a review of the way foreign branches are taxed, with a view to bringing forward legislation following next year’s Budget. ABI director-general Kerrie Kelly said the review was a “missed opportunity” to take concrete action on the issue and give multinational companies considering leaving the UK a greater incentive to stay put.
• Business rates for small businesses are to be cut for one year from October. Businesses occupying properties with ratable values up to £6,000 will pay no business rates for one year from October 2010. Those occupying properties with ratable values up to £12,000 will receive significant reductions.
• The government announced that the ABI will develop guidance for insurers on how to treat customers with criminal convictions as part of a wider effort to improve access to contents insurance for financially excluded social housing tenants.
• Councils are to receive an extra £84m to fix potholes caused by the recent extreme weather, with the amount distributed to local authorities depending on the length and condition of the roads that they are responsible for. The government also announced £285m for improvements to the motorway network. The announcements were welcomed by Allianz Commercial’s head of commercial motor and motor trade, Roger Ball, who said that the deteriorating condition of road surfaces had fuelled an upsurge in claims.
• The government has launched a consultation on strengthening the administration arrangements for insurers, with a view to ensuring consistent treatment for policyholders if their insurer becomes insolvent.