Chancellor clamps down on insurance premium tax avoiders
The Chancellor brought in two Insurance Premium Tax (IPT) anti-avoidance measure in yesterday’s Pre-Budget Report that he said would bring in £5m this year and an extra £10m each year after.
The first stops IPT being avoided on part of the premium charged in personal lines by making an element of it a separate fee. This is thought to apply to some aggregators.
The government said: “IPT is paid by an insurer on the gross premium charged under a taxable insurance contract, which includes any commissions or fees unless they are charged to the insured under a separate contract.
“Legislation will be introduced in Finance Bill 2010 effective from today to close an avoidance scheme involving an ‘administration fee’ charged under a separate contract. The legislation brings certain fees charged under a separate contract in connection with personal lines insurance into the scope of IPT.”
Protected cell companies
The second change dealt with protected cell companies that enable warranty providers who should pay the higher 17.5% IPT rate from paying only the lower rate.
The government said: “Protected Cell Companies (PCCs), companies with a similar cellular structure and those who use such companies to sell the types of insurance that are liable to Higher Rate Insurance Premium Tax (HR IPT).
“Some types of motor insurance and domestic appliance insurance are liable to HR IPT when sold by a supplier of cars or domestic appliances or, by persons 'connected' to such a supplier. The current rate of HR IPT is 17.5%.
“Insurance sold by a person who is not 'connected' is liable to IPT at the standard rate. Because of their structure PCCs are not caught by the current IPT definition of 'connected persons' and so provide an opportunity to avoid HR IPT. This measure will bring PCCs within the scope of HR IPT.
