Costly compliance mistakes could ensue, says FiscalReps
Insurers should take note of the increase in the rate of insurance premium tax (IPT) in the UK Government’s emergency budget, warned FiscalReps.
In line with the increase in the VAT rate, the higher rate of Insurance Premium Tax (IPT) will increase on 4 January 2011, from 17.5 per cent to 20 per cent and the standard rate will increase from 5 per cent to 6 per cent.
Mike Stalley, FiscalReps founder, said: “The increase in the basic rate of IPT, from 5% to 6%, and in the higher rate, from 17.5% to 20%, is a significant piece of news. Overlooking this development could lead the insurance industry to make some costly compliance mistakes.”
In particular, said Stalley, insurers globally need to remember that IPT is calculated based on the location of the insured risk, even if the insurer and the main policyholder are based elsewhere. “So insurance companies located outside the UK, but covering risks here, can be affected by this IPT increase just as much as UK-based insurers. If you are an insurer receiving taxable insurance premiums on risks located in the UK, you must register and account for IPT.”
The economic cost of IPT is effectively borne by the policyholder, but the tax is actually declared and paid by the insurer. Insurers that fail to calculate the IPT correctly may have to pay a fine. “Any penalties are likely to be significant,” said Stalley.
IPT is an international indirect tax levied on taxable contracts of insurance issued by insurance companies and captives. (IPT covers many insurance classes. Rates can vary and some classes of business are specifically exempted.) IPT, or variations of IPT, is levied in many countries. One of the key challenges with IPT compliance is that there are many national variations in the way in which the tax is structured and administered.