|HMRC Reference:Notice IPT 1 (October 2011)||View Change History|
This notice cancels and replaces Notice IPT 1 (March 2002) and Notice IPT 2 (February 1999).
This notice explains:
This notice is available on our Internet website at www.hmrc.gov.uk.
The main law relating to IPT is in the:
Other legislation used to define the liability of certain types of insurance and the location of the risk for IPT purposes, is found in the statutory instruments made under the Financial Services and Markets Act 2000, in particular the Regulated Activities Order (SI 2001/544) and the Law Applicable to Contracts of Insurance Order (SI 2001/2635).
IPT is a tax on premiums (see paragraph 3.1) received under taxable insurance contracts (see paragraph 2.2).
There are two rates:
All types of insurance risk located in the United Kingdom (see paragraph 5.2) are taxable unless they are specifically exempted (see section 5).
IPT does not apply to contracts entered into by insurers, which are not contracts of insurance, even if they are treated as insurance for regulatory purposes. Neither does it apply to guarantees (see paragraph 4.12) and financial instruments (see paragraph 4.6).
Any insurer receiving premiums in relation to taxable insurance contracts is engaged in a taxable business for the purposes of IPT. This is not limited to those companies authorised by the Financial Services Authority to carry on insurance business. Furthermore, entities other than limited companies may carry on insurance business and be registerable for IPT, as may insurers without an establishment in the UK (see paragraph 11.3 which deals with tax representatives).
All contracts of insurance are liable to IPT unless they are specifically exempted. The exemption overrides any liability to higher rate IPT. The following insurance contracts are exempt from IPT:
There is more information on exempt insurance contracts in section 5.
The higher rate of IPT is 20% (before the 4 January 2011 it was17.5%). It applies to insurance sales in two trading sectors where insurance is sold in relation to goods and services which are subject to VAT:
All travel insurance is subject to the higher rate of IPT, but in the other sectors the selective higher rate applies to any insurance sold in relation to certain goods (whether sold, leased or hired) only when sold by or through a person who supplies those goods as well. Full details are given in sections 6 and 7.
This insurance will not be caught by the higher rate when it is taken out either through an intermediary (for example a high street broker), or with an insurer, who is not covered by the description in paragraphs 6.2 and 7.2. Special arrangements also apply when such insurance is provided free of charge, or at less than the cost to the intermediary (see paragraphs 6.4, 7.4 and 9.7).
If an intermediary selling insurance subject to the higher rate charges the insured a fee in addition to the amount of premium due under a higher rate contract of insurance, the intermediary may be liable to register and account for IPT at the higher rate on the full amount of the fee charged.
You are a taxable intermediary when you charge an insurance related fee (see paragraph 2.4.4) and you fall into one or more of the categories at a), b) or c) below:-
(a) the person arranging or providing an insurance contract relating to a motor vehicle and you are also a:
(b) the person arranging or providing an insurance contract relating to relevant electrical or mechanical domestic appliances and you are also:
(c) the person arranging or providing a travel insurance contract.
You will be treated as a taxable intermediary if you are one of the people described in paragraph 2.4.3 and
“Premium” means all payments receivable under the contract of insurance by an insurer. (For this purpose payments under the contract of insurance received on an insurer’s behalf by third parties are treated as received by the insurer.) In particular, this includes any payments in connection with:
(However, credit charges, whether or not the payment for this facility is called interest, are not treated as part of the premium where the charge is made under a separate contract, for example, a contract regulated by the Consumer Credit Act).
The amount on which IPT is due is the premium (exclusive of tax) that an insurer receives, or is entitled to receive, under a taxable contract of insurance (or which a third party receives on the insurer’s behalf).
Section 66 of the Finance Act 1994 provides for anti-avoidance measures designed to prevent schemes which undervalue premiums. These allow HMRC to direct that, for contracts of insurance between, for example, connected persons (see section 8.1), IPT should be charged on the premium that would have been charged in “open market conditions”. We expect to only exercise these powers on an exceptional basis.
Where a premium relates to a contract which covers both taxable and exempt risks, the chargeable amount is that part of the premium which is attributable to taxable risks. Where premiums relate to risks charged at both the higher and the standard rates of tax then there are two separate chargeable amounts, one for the higher rated element and one for the standard rated element of the premium (see section 13).
A premium may consist wholly or partly of anything other than money. However, IPT should be accounted for on the entire value of the premium as defined above, whatever form the premium payment takes.
If you are a broker or intermediary, the amounts you receive for arranging taxable insurance contracts may be included in the sum on which the insurer accounts for IPT. This will depend upon the contract under which you receive your payment and the IPT rate which applies to the contract of insurance. See paragraph 3.2.5 if you charge a “commission” received under the insurance contract, or if you charge a “fee” under a separate contract, see paragraphs 3.2.6 or 3.2.7. These arrangements are not, in any way, affected by the name given to any of the charges made (for example, “fee”, “commission”, and “discount”).
The chargeable amount includes any commission paid to (or retained by) brokers and other intermediaries out of the premium. Section 72 of the Finance Act 1994 as amended states that the amount on which the insurer must account for IPT includes commission paid to or retained by the broker, if the commission is part of the payment due under the contract of insurance (see paragraph 3.1). The examples below assume that any commission paid to or retained by the broker is due under the contract of insurance and also that the contract is taxable at the standard, rather than the higher, rate of IPT:
Where an intermediary makes an additional charge in relation to an insurance contract that is taxable at the standard rate of IPT, and this charge is made under a separate contract to the contract of insurance then, provided the existence of this separate contract and this separate amount is identified in writing to the insured, these charges are not liable to IPT. Therefore, these fees should not be included in the intermediary’s notification of the premium to the insurer for the purposes of IPT.
However, there are special rules relating to the fees charged under separate contracts, and this means that the amounts are seen as part of the premium charged to the customer (and liable to IPT) if all the following conditions are met:
Condition A: the amounts are charged to individuals who enter into the contracts in their personal capacity, and
Condition B: the separate contract is entered into as a condition of entering into the taxable insurance contract or the individual is unlikely to enter into the separate contract without also entering into the taxable insurance contract, and
Condition C: the insured cannot negotiate the terms or the price of the separate contract, and
Condition D: no comprehensive assessment of the individual's risks is undertaken to arrive at the premium under the taxable insurance contract.
Where, under a separate contract, an intermediary makes an additional charge in relation to an insurance contract that is liable to IPT at the higher rate, the intermediary may be required to register and account for IPT on the fee charged. See section 2.4.3 for further details on “taxable intermediaries”.
An insurance contract will display many or all of the features listed below.
A “cost plus” scheme is one where an amount is paid by an employer to provide employees with the benefit of private medical treatment. This amount is equal to the cost of the treatment plus the cost of administering the scheme. These schemes normally operate either under an insurance contract or through a trust fund.
Where an employer arranges for an insurer to provide healthcare benefits to employees under a contract of insurance (see paragraph 3.3) all elements of the payment made to the insurer (including the cost to the insurance company of administering the scheme) will be treated as premium and subject to IPT.
For a cost plus scheme to be provided under an insurance contract, the insurer must assume some element of the insurance risk.
The insurance company may delegate the administration of a cost plus scheme to a Third Party Administrator (TPA), who may issue policies, collect premiums and perform similar services on behalf of the insurer; if any payment made to the TPA is due under a contract of insurance, then it is part of the value of the premium and so liable to IPT.
A cost plus scheme need not be provided under a contract of insurance (see paragraph 3.3). For example, an employer may engage a TPA to administer a cost plus scheme which he provides. Where the payment of claims is discretionary and not under any contractual obligation, then fees paid to the TPA are not payments in relation to a contract of insurance and so are not liable to IPT.
If either the TPA or the employer takes out insurance against the costs of the scheme exceeding a specified amount (due, for example, to unusually high levels of sickness amongst the employees) the premium for this insurance is subject to IPT.
However, in cases where there is a contractual obligation, for example between an employer and employees, to pay claims, then this arrangement may constitute a contract of insurance. In these circumstances, it is advisable for the employer to check the position of his scheme with the Financial Services Authority (FSA) as he may be committing an offence under the Financial Services and Markets Act (FSMA) 2000. Where the contractual arrangements in place constitute insurance for regulatory purposes, any amounts charged will be subject to IPT.
In practice the only likely non-insurance alternative method for employers providing healthcare schemes is that involving a trust that complies with the relevant HMRC guidelines. Under such an arrangement an employer sets up a trust fund, usually administered by a TPA, from which the medical bills of employees are met.
The obligations to meet claims under these trust fund arrangements are usually made under equity rather than under contract and so do not create a contract of insurance between the participants (see paragraph 3.3 on what constitutes a contract of insurance). In such cases there is no liability to IPT. However trust arrangements vary and it is possible that some may create a contractual relationship under which payments are subject to IPT. If you are unsure about the IPT liability of your health trust scheme please contact our VAT Helpline who also deal with IPT queries.
Where an organisation or group of similar bodies (for example, schools or councils) feels it is financially able to carry its own risks, or at least part of its risks, it may create its own reserve fund by putting money aside each year to cover future losses. In such situations, and where a contract of insurance does not exist (see paragraph 3.3), there is no liability to IPT. The organisation involved in this sort of risk management may decide that it only wishes to carry its own risk up to a certain level, and may purchase cover from a commercial insurer for the risk it wishes to transfer. This contract is liable to IPT in the normal way.
If an insured party negotiates a reduced premium because a policy involves a deductible (whereby a proportion of the insured loss is borne by the policyholder) then IPT is due only on the reduced premium.
Where an insured party volunteers for an excess (that is, a specified sum which the insured must bear before the insurers pay their liability) and receives the benefit of a reduced premium, IPT is due only on the amount of the reduced premium. The same guidelines apply where an excess is compulsory, for example, as a mechanism to reduce small claims.
Some professional associations may offer cover to members without using a contract of insurance (see paragraph 3.3). This may be because payments into a fund (and out of it in respect of claims) are made on a statutory basis rather than a contractual basis. Where there is no contract of insurance in place there is no IPT due on payments into any collective fund.
Contracts such as futures, contracts for difference and swaps, which are based on movements in the value of underlying commodities such as money or securities, are used to manage risk, and to this extent they have some similarity with a contract of insurance. However, there are major differences between financial instruments and contracts of insurance (see paragraph 3.3 on what constitutes a contract of insurance), which include the following:
Payments relating to financial instruments are not, therefore, liable to IPT.
Subscriptions to motoring organisations usually include an element for assistance in the event of a breakdown which relates to a taxable contract of insurance (albeit one under which the benefits to the insured, the member, are in kind, rather than in monetary form). The element of the membership fee that is attributable to this type of insurance is liable to IPT. Where this type of insurance is sold in the circumstances outlined in section 6.2 the insurance will be liable to IPT at the higher rate.
The term mutual insurance is one term which may be applied to any collective insurance where the total premiums and the investment income derived from the premiums are put into a fund, which is the property of the contributors. Reinsurance costs, management expenses and members’ claims are paid out of the fund.
Where the members of any mutual insurance group are, in effect, both the insured and the insurer, this does not preclude there being a contract of insurance in place and the premiums being liable to IPT in the normal way.
One type of mutual insurance is offered by P&I clubs. The cover provided is primarily protection and indemnity in relation to commercial ships. Although some of the business underwritten by such insurers will be exempt (see paragraph 5.5), not all business underwritten by P&I Clubs is exempt and clubs may therefore be required to register and account for IPT (unless the de minimis rules described in paragraph 13.8 apply).
Under a service agreement a supplier will normally undertake to provide a certain level of service over a specified period in return for an agreed payment. The types and levels of services vary but may, include, for example:
Payment may be in a lump sum or at regular intervals and such sums are not subject to IPT because the services are not supplied under contracts of insurance. However, if cover is obtained from an insurer against any shortfall in the repair fund, there is a contract of insurance between the insurer and the supplier (as the insured) and this is liable to IPT. If, unusually, the service agreement itself includes a taxable contract of insurance, this element will be liable to IPT.
When a seller or manufacturer of goods gives an undertaking to the effect that, provided the goods are used for the purpose intended, they will continue to work for a certain period of time and, if they cease to work, the provider of the goods will repair or replace the goods without charge to the purchaser, this may be referred to as a warranty. This type of warranty is not insurance. It is, rather, an undertaking to the effect that the vendor is selling goods, which are in good working order, and payments received in connection with this undertaking are not liable to IPT. However, if the retailer or manufacturer takes out insurance cover against the risk of having to replace the goods within the warranty period, the related premium is taxable.
An extended warranty may often take the form of a mechanical breakdown insurance contract, under which the insurer, in return for an agreed premium, takes on a risk to the policyholder that (for example) the insured item will unexpectedly break or prematurely wear out. In this case the insurer undertakes to pay for the repair or replacement of the insured item in such an event and the contract of insurance is liable to IPT. Where provided by a person described in sections 6 or 7 then IPT will be due at the higher rate.
Under a contract of guarantee, the guarantor promises the creditor to be responsible for the performance of a third party in paying their debts to the creditor or performing his obligations. Guarantee fees are not liable to IPT. Although there are some similarities between an insurance contract (see paragraph 3.3) and a guarantee, contracts of guarantee cannot be contracts of insurance.
Indicators of a contract of guarantee include:
All contracts of insurance are liable to IPT at the standard or higher rate unless specifically exempted. Contracts of insurance are exempt when they relate solely to one or more of the risks described in the relevant paragraphs of this section. Where a contract covers both exempt and non-exempt risks, it will be necessary to apportion the premium (see section 13).
The following risks are exempt from IPT:
Some exempt insurance contracts are defined by reference to classes of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO).
The classes of insurance are:
Contracts of general insurance (Part I of Schedule 1 to the RAO)
Motor Vehicle Liability
Contracts of Long term insurance (Part II of Schedule 1 to the RAO)
Life and annuity
Contracts which cover a risk outside the UK are exempt. For IPT purposes the UK:
The rules for determining where a risk is located are set out in the sub-paragraphs below.
Where a contract covers risks situated both inside and outside the UK, the premium should be apportioned between that element which relates to taxable risks and that which relates to exempt risks (see paragraph 13.1).
The rules for determining whether a risk is located in the UK for IPT purposes broadly follow those set out in Article 2 (d) of the EC Second Non-Life Insurance Directive, which are reflected in UK law in the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001 (SI 2001/2635).
A risk is located in the UK if the insurance:
(a) relates to buildings and/or their contents, and the building is located in the UK (whether or not the contents are covered by the same policy as the one which covers the building);
(b) relates to any vehicle of any type which is registered in the UK (“vehicle” includes motor vehicles, ships, yachts and aircraft);
(c) is a policy of up to 4 months duration which covers a travel or holiday risk when the policy is taken out in the UK; or
(d) is of a type not covered in (a) to (c) above and the policy holder is either:
A vehicle not registered anywhere - for example a privately owned yacht - may be a risk in the UK under (d) above; the location of the risk will be determined by the usual place of residence of the policyholder.
Buildings and contents insurance relating to embassies is treated as relating to a risk located outside the UK, so the related premiums are exempt.
However, other insurance, such as personal accident cover taken out by an embassy employee, is liable to IPT (if the employee is habitually resident in the UK).
Some international organisations are eligible for relief (not exemption) from indirect taxes (including IPT) on goods and services supplied to them. These reliefs are administered by the Protocol Department of the Foreign and Commonwealth Office.
In addition to the normal meaning of building, an oil rig or pipeline fixed to the seabed is also a building for the purposes of IPT, as are similar structures fixed to land, bridges and fixed cranes.
An establishment for the purposes of the location of risk rules includes:
In all cases, it will be necessary for the insurer to demonstrate that there is a clearly identifiable risk attaching to an overseas establishment for exemption or apportionment to be applicable (see the example in paragraph 13.3).
Travel insurance policies of duration of 4 months or less which are taken out by a person in the UK by post, telephone or the Internet are regarded as taken out in the UK, regardless of where the insurer or broker is based. Holiday or travel insurance for periods greater than 4 months falls within 5.2.1(d) above and is therefore taxable where the traveller is habitually resident in the UK at the time the contract is entered into.
Examples of travel policies, demonstrating HMRCs interpretation of ‘habitually residing’ are given below for guidance. Clearly cases will vary and some may require individual consideration. In practice, and in most cases, insurers can be led by the current home address provided by the insured on the proposal form. If the insured person gives a UK address then it would be reasonable to assume that the policy is subject to UK IPT. If the insured gives an overseas address, or otherwise indicates on the proposal form that he is not currently habitually residing in the UK, then the insurer should make the necessary enquiries and obtain and retain supporting information if the premium is considered to be exempt from UK IPT. The insurer should also bear in mind that, if the insured is currently habitually resident in a non-UK country, there may well be a liability to account for insurance tax in that country.
A reinsurance contract under which an original insurer is indemnified by a reinsurer for a risk undertaken by the original insurer is exempt. The exemption applies to all true reinsurance whether it is written on a facultative or treaty basis, and whether it is proportional or non proportional. This exemption does not apply to contractual situations such as:
A contract of long term insurance of one or more of classes I to VII (see paragraph 5.1.1) is exempt, except for medical insurance (see paragraph 5.4.1). Some examples of “long term” insurance are life insurance; mortgage or pension linked insurance; and permanent health insurance.
Where they were taken out before the announcement of IPT, “long term” contracts which include an element of general insurance are also exempt if, for regulatory purposes, they are regarded as wholly “long term” insurance. An example of such a situation is a life insurance contract with a small element of general accident and sickness included within the policy. Please note that this aspect of the exemption is time limited in that it applies only to mixed contracts taken out before 1 December 1993. For such contracts taken out after that date insurers will be required to apportion the contract between the taxable and exempt elements although the de minimis rules may apply (see paragraph 13.8).
Premiums received, or treated as received, on or after 1 October 1997 for medical insurance written under a long-term contract are not exempt from IPT. The expression “medical insurance” is defined in the legislation and essentially covers those contracts providing benefits more commonly found under an annual, private medical insurance or hospital cash plan type contract. To the extent that a contract provides medical insurance, it will not qualify for the otherwise universal IPT exemption for long term insurance and will therefore be liable to IPT at the standard rate. Insurance contracts providing critical illness cover (for example, a lump sum payment on diagnosis of a serious medical condition), permanent health insurance (such as income replacement) and cover which meets the cost of continuing care for the elderly or chronically sick - all of which are long term policies - are exempt from IPT.
PHI as defined in class IV (see paragraph 5.1.1) is exempt. PHI contracts must be written for a minimum period of at least five years (or until the normal retirement age of the policyholder) and cannot be terminated by the insurer (except in special circumstances mentioned in the contract). These characteristics clearly distinguish such contracts from other health insurance which falls within classes 1 and 2 (see paragraph 5.1.1) and which is liable to IPT. PHI is often described as income protection insurance because it provides a replacement income when someone is unable to work through sickness or disability.
Under Schedule 1 to the RAO, contracts of insurance providing benefits related to marriage and birth are regarded as (class II) contracts of long term insurance if they are expressed to be in effect for a period of more than 1 year.
For IPT purposes this time limit is regarded as met, and the contract is exempt, only if the insurer:
A contract of insurance that relates to a commercial ship and is a contract that constitutes business of one or more of the specified classes 1, 6 and 12 (that is, accident, hull and cargo and third party risks - see paragraph 5.1.1) is exempt.
A commercial ship is one which is of a gross tonnage of 15 tons or more and not designed or adapted for use for recreation or pleasure. (The gross tonnage of a ship is that determined under the Merchant Shipping Acts.) The phrase “designed or adapted for use for recreation or pleasure” means that policies covering vessels which have the nature or characteristics of recreational or pleasure craft are not exempt. However, a policy covering a ship, which is of a gross tonnage of 15 tons or more and which is adapted for the business of recreation or pleasure, such as a cruise ship, does fall within the exemption. Similarly, insurance relating to charter vessels over 15 tons may be treated as exempt, even if the charter craft are hired out for recreational purposes.
The term “Ship” includes light vessels, fire floats, dredgers, barges or lighters, mobile floating docks or cranes and offshore oil or gas installations used in the underwater exploitation or exploration of oil and gas resources, which are designed to be moved from place to place. Fixed installations that are normally embedded in the sea bed are not ships even though they may be transported to a site as a floating structure. For IPT purposes, these are regarded as buildings.
Insurance contracts which cover the machinery, tackle, furniture or equipment of a commercial ship, are exempt from IPT. Policies relating to associated liabilities (such as an employer’s liability policy), which do not fall within classes 1, 6 and 12 (that is, accident, hull and cargo and third party risks - see paragraph 5.1.1) and which attach to a commercial ship that is registered abroad will be exempt because the risk is located outside the UK (see paragraph 5.2).
The exemption does not apply to contracts of insurance that cover the construction of any ship; these are not exempt from IPT. Construction is deemed to end on the launch date of a ship (that is, when the ship first takes buoyancy in the water).
A contract of insurance that relates to a hovercraft is exempt from IPT, unless the hovercraft is designed or adapted for recreation or pleasure. (Where a hovercraft is registered outside the UK, the risk is not deemed to be in the UK – see paragraph 5.2).
The exemption applies only to insurance directly linked to the operation of the Channel Tunnel shuttle and rail service itself. The law is very specifically framed and is intended only to give parity of treatment with the cross-Channel ferry operators (see paragraph 5.5). The exemption, like that for the marine sector, does not apply to cover for risks such as business interruption.
A contract of insurance that relates to a lifeboat or a lifeboat and lifeboat equipment and which is a contract which constitutes business of one or more of classes 1, 6 and 12 (that is, accident, hull and cargo and third party risks - see paragraph 5.1.1) is exempt.
A lifeboat is a vessel used, or to be used, solely for rescue or assistance at sea. “Lifeboat” includes conventional lifeboats and other vessels used solely in connection with life saving activities at sea. Lifeboat equipment is defined as anything used, or to be used, solely in connection with a lifeboat and it includes carriage equipment, tractors, winches and hauling equipment used solely for the launching and recovery of lifeboats. “Lifeboat equipment” does not include boathouses and slipways.
The exemption does not extend to policies covering rescue craft to be used on inland waterways, lakes and reservoirs. Policies which relate to the construction of lifeboats are also not exempt from IPT (construction is deemed to end at the launch date - see paragraph 5.5.2). The exemption does, however, extend to new, completed lifeboats not yet used but to be used for rescue at sea and to policies relating to lifeboats used for training personnel in rescue at sea (but not to vessels which are not lifeboats, even though they may be used to train personnel in lifesaving skills).
A contract of insurance that relates to a commercial aircraft and is a contract that constitutes business of one or more of classes 1, 5 and 11 (that is, accident, hull and cargo, and third party risks - see paragraph 5.1.1) is exempt. Policies relating to associated liabilities, which do not fall within classes 1, 5 and 11, which attach to a commercial aircraft registered abroad may also be treated as exempt.
A commercial aircraft is one which weighs 8000 kilograms or more and which is not designed or adapted for use for recreation or pleasure. This weight limit refers to the authorised maximum take-off weight. For civil aircraft this is specified in the certificate of airworthiness in force for the aircraft.
Contracts of insurance that are not exempt include those that relate to any type of aircraft that is less than 8000 kilograms or to any aircraft (irrespective of its weight) that is designed or adapted for use for recreation or pleasure. IPT is also due on contracts of insurance relating to the construction of any aircraft.
Satellites are not regarded as aircraft. Policies relating to the construction of a satellite, or to a satellite whilst it is launched or in orbit, will be liable to IPT if the insured party has a UK establishment to which a risk attaches. (Of course, several parties may have an insurable interest.) Where a policy relates to the transportation of a satellite from its place of construction in the UK to a non-UK launch site, cover relating to loss of or damage to the satellite is exempt.
A contract of insurance that relates to foreign or international railway rolling stock and which constitutes business of one or more of classes 4 and 13 (that is loss of or damage to railway rolling stock and third party liability - see paragraph 5.1.1) is exempt. Foreign or international railway rolling stock is railway rolling stock which is used principally for journeys taking place wholly or partly outside the UK.
The ‘railway rolling stock’ included in the exemption is the wheeled vehicles (including locomotives, passenger coaches, dining cars and other goods-carrying carriages) that are used on a railway journey between two places outside the UK or between a place in the UK and a place abroad in either direction (see paragraph 5.2 for a definition of the UK).
A contract of insurance that relates to loss of or damage to goods in foreign or international transit is exempt from IPT. To qualify for the exemption, a contract must be entered into by an insured in the course of a business carried on by him or her. The exemption does not extend to the removal of goods to any destination if the insured is acting in a private capacity. Insurance contracts that relate to containers are also exempt. Non-motorised trailers are treated as containers.
Goods are considered to be in foreign or international transit where their carriage begins or ends outside the UK. Where a cargo insurance contract relates both to cover for some foreign or international movements of some goods (as defined in the preceding sentence) and to cover for other goods which are in transit only within the UK (that is, where the carriage begins or ends in the UK), the element of the premium which relates to goods which are in transit only within the UK is liable to IPT.
Usually FOB insurances relate to movements of goods whilst they are in transit in the UK. Where such FOB cover is taken out in respect of loss of or damage to goods which are going for ultimate export from the UK, then such insurance is exempt from IPT, even in cases where a policy only relates to the period of time during which the goods are in the UK.
FOB policies may include seller’s interest cover. This insures against the possibility that the intended purchaser may refuse to buy the goods on delivery (whether due to damage or otherwise). To the extent that this cover relates to loss of or damage to the goods (either on the outward, or the return journey if the goods have to be brought back to the UK) it is exempt from IPT. If the seller’s interest cover also offers insurance against extra transport costs or loss of profits, then this is not exempt from IPT.
Storage cover may be provided as part of an export cargo cover to insure against losses during any period for which goods are stored in the UK in the period after their sale but before their transportation begins. Where such cover is part of an export cover for commercial goods in international transit, the entire premium is exempt from IPT.
Import or transhipment cargo cover generally includes cover against loss of or damage to goods during unavoidable transport delays during transit to or through the UK. This is usually limited to 60 days and, if this is the case, the entire premium is exempt from IPT as part of the international transit cover.
Import cover may also include stock throughput cover, which protects against losses during storage in the UK by the importer pending distribution and onward sale. Where the stock throughput cover is limited to 60 days average storage time for the goods in question, it is regarded as part of the international transit cover and is also exempt from IPT.
Where a buyer’s interest clause is part of an import cargo policy, the element of any premium which relates to loss of or damage to goods in international transit may be treated as exempt. (Usually the buyer would ask the seller to claim under the seller’s FOB policy for damage if that damage occurred during the period of the seller’s cover, and the buyer’s interest covers the purchaser if the seller will not do this, or the seller’s insurer refuses to pay).
Bailee’s liability insurance covers, amongst other things, loss of or damage to goods whilst they are in the bailee’s care. Where such cover relates to loss of or damage to goods which are in international transit, the related premium may be treated as exempt from IPT, as may that part of the premium which relates to loss of or damage to these goods (caused by a fault of the bailee, such as faulty packing) once they have left the bailee’s premises.
Similarly, exemption also applies for road hauliers’ cover where that cover is for loss of or damage to goods in foreign or international transit, even where the particular haulier is only providing carriage for the UK leg of the journey. It applies whether the insurance is taken out by a contractual carrier (who may not actually be involved in the physical transportation) or an actual carrier (who may be subcontracted to the contractual carrier). If cover under the policy relates to risks other than loss of or damage to goods, such as liability for delay in delivery or liability for not exercising reasonable care, then that element of the policy is taxable, even if the goods involved are in international transit.
It may be difficult for insurers to separately identify any taxable element in each policy they issue for road hauliers’ cover. In such cases, insurers should agree with us an estimated, across the board apportionment for all premiums written relating to that line of business.
Where an insurer offers block policies to a removal company and the remover acts as an agent of the insurer in arranging individual insurance policies for the customers, the remover will be required to ensure (as agent of the insurer) that exemption is limited to policies covering the movement of goods in foreign or international transit and that the insured is acting in the course of his or her business (see paragraph 5.10).
Export finance related insurance is exempt. The exemption covers:
In order for this exemption to apply, there must be a tie-in to an underlying movement or export of specific goods or an export of specific services. Exemption does not apply, for example, to an insurance contract which covers risks attaching to a speculative investment that may or may not result in a movement of goods.
Where an insurance contract relates to export credit, then, to qualify for exemption it must cover a person who:
Where an insurance contract covers a person for exchange rate losses, it is exempt if it relates to the loss made by an insured party when:
The exemption applies whether the insured party has entered into a contract to supply goods or services, or has tendered for the contract, or intends to tender.
An insurance contract is exempt if it is provided to a party, such as a bank, which has provided a loan or other financial facility to an overseas customer so that the overseas customer might pay for a supply of goods or services, which he or she has contracted to purchase.
Block insurance policies held by Motability, under which all those disabled drivers who lease their vehicles under the Motability scheme are insured, are exempt. This exemption does not extend to disabled drivers generally.
The general provisions relating to the higher rate of IPT are described at paragraph 2.4
The higher rate of IPT will apply to an insurance premium relating to a motor car or motor cycle if the contract is arranged through or supplied by:
The higher rate will apply to insurance sold by such persons irrespective of whether any goods or services are actually purchased. However, the higher rate does not apply to “ordinary” motor insurance (see paragraph 6.8), and in relation to discounted insurance, the higher rate only applies to the amount paid by the insured (see paragraph 6.5). See also the “Statement of Practice” at section 8.1).
The terms motor car and motor cycle are as defined in section 185(1) of the Road Traffic Act 1988. (The expression motor car includes small vans).
The higher rate of IPT will not apply to insurance which is provided to the insured free of charge. For example, if you are a supplier of motor vehicles and you provide insurance free as a part of the package with the cars you sell, the insurance premium that you pass to the insurer or intermediary and which is paid for out of your VATable income is liable to IPT at the standard rate.
Where insurance is offered free to the purchaser of a motor vehicle, but an additional premium is charged to the purchaser for an add-on (for example, an extra year), the higher rate of IPT will apply only to the premium relating to the add-on.
Some suppliers of motor vehicles offer motor insurance to their customers at a price that is less than the amount charged to the supplier by the insurer or scheme administrator. In such circumstances, the higher rate of IPT applies, only to the amount of the premium which is paid by the customer. The part of the premium which is subsidised by the supplier of motor vehicles will be liable to IPT at the standard rate.
The following are not regarded as suppliers of motor vehicles:
However, you are a “supplier of motor cars or motor cycles” when you make any other supply including the supply of a motor vehicle:
The higher rate of IPT applies to all motor insurance relating to hired motor vehicles where that insurance is arranged or provided by a car hire business, a person connected to such a business or a person passing a fee or commission relating to a motor insurance contract to such a business.
A car hire business may treat the insurance of its vehicles as an overhead expense and recover the cost in the overall charge made to the customer. In such cases the charge made to the customer is subject to VAT (not IPT) because it is part of the consideration for hiring the car. The insurance premium paid by the hire company to the insurer is subject to IPT at the standard rate.
Sales of ordinary motor insurance by motor dealers are not subject to the higher rate.
Where ordinary motor insurance contains a minor and ancillary element of mechanical breakdown insurance or roadside assistance insurance, the premium relating to the mechanical breakdown or roadside assistance element will not be subject to the higher rate.
The higher rate does however apply to ordinary motor insurance arranged by car hire/rental businesses.
The higher rate of IPT does not apply to credit protection insurance, including “gap” and value guaranteed insurance, taken out to cover any shortfall from the proceeds of the comprehensive motor policy should a vehicle be written off, where any payout in the event of a claim can only be used to off-set any liability under a financing arrangement. This is because the insurance is taken out primarily in connection with the finance rather than the vehicle.
The definition of “Connected Person” is that used in section 993 of the Income Tax Act 2007 and section 1122 of the Corporation Tax Act 2010 – essentially:
Where there are genuine difficulties in identifying connected sales, the higher rate will only apply where there is a deliberate or systematic attempt by:
This approach is reflected in a Statement of Practice issued by HMRC which is reproduced at section 8.1. The Statement of Practice may be changed or disapplied if used for the purposes of avoidance of tax.
A motor dealer has an associated insurance agent. Insurance is promoted as an optional add-on with every vehicle sold, and customers are encouraged to take out policies with the dealer’s associated company. The majority of the agent’s business is made up of such sales. This motor insurance arranged by the insurance agent would be regarded as “connected” to the sale of the motor vehicles by the associated dealer and would be liable to the higher rate.
A motor dealer has an associated insurance agent, but this agent operates completely independently and from a different site. No attempt is made by the motor dealer to promote the insurance arranged by this agent, and the car dealer’s customers buy their insurance from a range of outlets. The insurance agent is under no obligation to ask customers where they purchased the vehicle that they are insuring, in order to identify those purchased from the associated dealer. The motor insurance arranged by the insurance agent is not liable to the higher rate of IPT even if, co-incidentally, it should occasionally be sold to customers of the associated motor dealer.
Roadside assistance insurance is insurance relating to a motor vehicle. So it is liable to the selective higher rate of IPT (but also see paragraph 9.9)
Where a supplier of motor vehicles sells a guarantee to the purchaser of a vehicle, the supplier will often take out insurance for indemnity against financial loss. The premium relating to such insurance is liable to IPT at the standard rate.
If a supplier of motor vehicles takes out floorspan insurance to protect against damage to vehicles held as stock, the insurance (paid for out of the supplier’s VATable income) is liable to IPT at the standard rate even if taken out with a “connected” insurer.
Certain manufacturers’ and dealers’ schemes use the so-called “card in the box” method to sell motor insurance. This operates by placing a leaflet offering an insurance quote in the car when it is sold. If the purchaser takes out a policy a commission is paid to the manufacturer or seller of the car. This commission would normally be payment for a VAT exempt supply of arranging insurance and the insurance premium would be liable to IPT at the higher rate. If, however, the manufacturer or dealer is offering a supply of advertising services in return for a fee, which is liable to VAT at the standard rate, the insurance premiums relating to the insurance arranged by them may be treated as liable to IPT at the standard rate.
The general provisions relating to the higher rate of IPT are described at paragraph 2.4.
The higher rate of IPT will apply to an insurance premium relating to certain electrical or mechanical domestic appliances if the contract is arranged through or supplied by one of the people described below:
The higher rate will apply to insurance sold by such persons irrespective of whether any goods or services are actually purchased. However, in relation to discounted insurance the higher rate applies to the amount paid by the insured (see paragraph 7.5 and the “Statement of Practice” at section 8.1).
The higher rate of IPT does not apply to credit protection insurance, including “gap” and value guaranteed insurance, taken out to cover any shortfall from the proceeds of the policy, where any payout in the event of a claim can only be used to off-set any liability under a financing arrangements. This is because the insurance is taken out primarily in connection with the finance rather than the domestic appliance.
The higher rate does not apply to home contents insurance.
For the purposes of the higher rate of IPT an electrical or mechanical domestic appliance is any such appliance of a kind which:
“Ordinarily” means the state of affairs that is normally, commonly or usually so.
Taking personal computers as an example, it would not be extraordinary to find such an item in the home. Therefore these fall to be treated as domestic appliances for the purposes of the selective higher rate of IPT. So although most businesses use computers, such appliances are also ordinarily used in the home. Paragraph 7.13 gives a list of those goods, which are considered to be relevant electrical or mechanical domestic appliances (referred to simply as “domestic appliances” for the remainder of this notice) for the purposes of the higher rate. Although the list is not intended to be comprehensive, it is indicative of the items covered.
The higher rate of IPT will not apply to insurance which is provided to the insured free of charge. For example, if you are a supplier of domestic appliances and you provide insurance free as part of a package with the appliances you sell, the insurance premium that you pass to the insurer or intermediary and which is paid for out of your VATable income is liable to IPT at the standard rate. Where insurance is offered free to the purchaser of an appliance and an additional premium is charged to the purchaser for an add-on (for example, an extra year) the higher rate of IPT will apply only to the premium relating to the add-on.
If a supplier of domestic appliances offers insurance relating to those appliances to customers at a price that is less than the amount charged to the supplier by the insurer, then the higher rate of IPT will apply only to the amount of the premium which is paid by the customer. The part of the premium, which is subsidised by the supplier of domestic appliances, will be liable to IPT at the standard rate.
The following are not regarded as suppliers of domestic appliances:
However, the term “supplier of domestic appliances” includes all other forms of supply including goods on hire.
The definition of “Connected Person” is that used in section 993 of the Income Tax Act 2007 and section 1122 of the Corporation Tax Act 2010 – essentially:
Where there are genuine difficulties in identifying connected sales, the higher rate will only apply where there is a deliberate or systematic attempt:
This approach is reflected in a Statement of Practice issued by HMRC, which is reproduced at section 8.1. The Statement of Practice may be changed or disapplied if used for the purposes of avoidance of tax.
Where a supplier of domestic appliances sells a guarantee to the purchaser of an appliance, the supplier will often take out insurance to indemnify himself or herself against financial loss. The premium relating to such insurance is liable to IPT at the standard rate.
If a supplier of domestic appliances takes out insurance to protect against damage to or theft of domestic appliances held as stock, the insurance (paid for out of the supplier’s VATable income) is liable to IPT at the standard rate even if taken out with a “connected” insurer.
Certain manufacturers’ and dealers’ schemes use the so-called “card in the box” method to sell insurance relating to domestic appliances. This operates by placing a card offering an insurance quote in the box with the goods. If the purchaser takes out a policy, a commission is paid to the manufacturer or seller of the appliance. This commission would normally be payment for a VAT exempt supply of arranging insurance and the insurance premium would be liable to IPT at the higher rate. If, however, the manufacturer or dealer is offering a supply of advertising services in return for a fee which is liable to VAT at the standard rate, the insurance premiums relating to the insurance arranged by them may be treated as liable to IPT at the standard rate.
Below is a list of those goods considered to be relevant electrical or mechanical domestic appliances for the purposes of the higher rate.
Mobile phones are not included in the list as they are primarily a means of communication, however, other handheld electrical devices that meet the criteria outlined above and are not primarily a means of communication would be included.
This list is not comprehensive, but gives a useful indication of the items covered:
Schedule 6A to the Finance Act 1994 provides that the higher rate of IPT will apply to taxable insurance contracts relating to motor vehicles and domestic appliances where the insurance is arranged through or provided by a person connected [Note 1] to (for example) a motor dealer or a retailer of domestic electrical appliances (“connected suppliers of relevant goods or services”). However, the higher rate will only apply where the insurance relates to relevant goods or services provided by the connected supplier.
In many cases these “connected” transactions will be regular occurrences or easily identified, and the higher rate should be applied accordingly.
However, there will be some instances where the “connected” transactions are indistinguishable from other transactions. In such cases, HMRC will accept that where the connection is co-incidental and the insurance is not provided as part of a systematic scheme to sell insurance to customers of a connected supplier of relevant goods or services, the premium will not be subject to the higher rate.
So, where there are genuine difficulties in identifying connected sales, the higher rate of IPT will only apply where there is a deliberate or systematic attempt:
Where there are genuine difficulties in identifying connected sales, HMRC will not expect insurers or insurance agents who are connected to a supplier of relevant goods or services to ask each and every customer where they made their purchase of relevant goods or services, or if, and if so where, they intend to make such a purchase.
The connected persons provisions will not generally require the apportionment of premiums between that part of a premium, which is deemed to relate to goods or services supplied by a “connected” supplier of relevant goods or services and that part which is deemed not to. This is because a premium will usually either be treated in its entirety as “connected” (if it is sold as part of a systematic scheme to sell insurance to customers of the “connected” supplier of relevant goods or services or if its connection is easily identifiable) or it will be treated in its entirety as completely unconnected.
This Statement of Practice will be implemented at local level by local IPT officers, with decisions taken by them. Any disputes may be referred to the Independent Adjudicator.
This Statement of Practice may be changed or disapplied if used for the purposes of avoidance of tax.
[Note 1] Any question of whether a person is connected with another shall be determined in accordance with section 993 of the Income Tax Act 2007 and section 1122 of the Corporation Tax Act 2010.
The general provisions relating to the higher rate of IPT are described at paragraph 2.4.
When the higher rate of IPT was introduced, it applied to travel insurance (other than free insurance) only when sold by a travel agent or tour operator (or a person connected to, or paying a fee or commission to, a travel agent or tour operator). From 1 August 1998 the higher rate of IPT applies to all insurance premiums relating to taxable travel insurance, including free insurance, regardless of the type of supplier.
Travel insurance provides cover for a traveller against risks (“travel risks”) to which he or she is exposed at any time before an intended trip or during the course of travel.
“Travel risks” means risks associated with, or related to, travel or intended travel -
or risks to which a person travelling may be exposed during, or at any place at which he may be in the course of, any such travel.
The aim is to ensure that the higher rate applies only to true travel policies and not to premiums for other policies which happen to cover risks incurred outside the home.
For example, many home contents policies provide cover against the loss of personal property (for example, a wallet) whilst the insured is out of the home. Although the insured may be travelling when the loss occurs, such a policy would not normally be seen as travel insurance.
Where a policy provides cover for a traveller against both travel risks and other risks you should normally apportion the premium and account for higher rate IPT on the travel element.
However, provided the travel element does not:
The premium will not fall within the scope of the higher rate.
But any policy which provides cover against two or more of those travel components will attract the higher rate for that element of the premium which relates to the travel regardless of the proportion of the premium relating to them.
The travel components are:
A person takes out private medical insurance, which provides for medical diagnosis, consultation, treatment and care as well as the related expenses. If the insured fell ill whilst abroad, the contract would cover the costs incurred and may even include the expenses of returning home. Provided this element of the premium does not exceed 10 per cent of the total premium payable, it will not fall within the higher rate, because only one of the travel components above (personal injury or illness or expenses of returning home) is applicable in this instance.
The part of the premium relating to travel risks in individual private medical or personal accident policies would normally fall within the limits set out in paragraph 9.5.1, although some of these policies may have a travel add-on, which contains two or more of the travel components (see paragraph 9.5.2).
Under normal circumstances, the policy should be apportioned between the travel elements of the policy at the higher rate (in both the main policy and the add-on) and non-travel risks at the standard rate. However, to ease administration, in such cases we will normally only require insurers to apply the higher rate to the travel add-on. Insurers should bring such cases to our attention.
For the higher rate to apply, the risks covered by the policy must be those of the person travelling. Many corporate “travel” policies are - in effect - employer liability contracts, where an employer sending an employee on business owes that employee a duty of care.
So if, for example, the employer has undertaken to recompense an employee for unforeseen additional expenses (e.g. medical or loss of baggage) incurred during business travel, he may take out a policy to cover this risk. In these circumstances it is the employer’s risk that is covered and he is the insured party. The employee has no right to make a claim under the policy. This would be the case even if the policy continued to provide cover where the employee extends a business trip into a holiday.
These “liability” policies are not travel insurance and will not be subject to the higher rate.
There may be corporate policies where it is the employees’ own risks that are being covered and they have the right to make a claim on the policy. In this situation the higher rate will apply.
All travel insurance supplied free of charge is subject to the higher rate. Before 1 August 1998, where an intermediary provided free travel insurance with holidays, the insurer accounted for IPT at the standard rate on the premium charged to the intermediary.
Where insurance is supplied to the insured for a price less than the intermediary pays to the insurer, the higher rate is due on the full premium regardless of what the insured pays. This change took effect from 1 August 1998.
In this respect, travel insurance is different from the other types of insurance liable to the higher rate (see paragraphs 6.4, 6.5, 7.4 and 7.5).
The higher rate of IPT applies to all annual travel policies.
Some roadside assistance insurance (for example AA, RAC cover) is supplied to travellers who intend to take their vehicle with them. This is regarded as insurance relating to a motor vehicle risk (see paragraph 6.12) not to a travel risk, so it will not be liable to the higher rate of IPT unless supplied by a person described in paragraph 6.2 (motor dealers etc).
If you are receiving taxable insurance premiums as an insurer or form the intention to receive premiums as an insurer, you are required to register and account for IPT.
If you are receiving insurance premiums as an insurer wholly in relation to exempt insurance contracts (section 2.3), then there is no requirement to register and account for IPT.
If you are receiving insurance premiums as an insurer partially in relation to exempt insurance contracts and partially in relation to taxable contracts then there may still be no requirement to register and account for IPT (see paragraph 10.4).
If you are a taxable intermediary (see paragraph 2.4.3), you are also required to register and account for IPT.
You are required to notify HMRC within 30 days of forming the intention of receiving, as the insurer, taxable premiums, that is
You must be registered from the date you receive (or someone receives on your behalf) your first taxable premium.
If you are a taxable intermediary (see paragraph 2.4.3), you are required to register within 30 days of the date on which you decide to charge taxable intermediaries’ fees.
If you do not notify HMRC at the proper time, you may be liable to a financial penalty (see paragraph 18.1).
To register, you must complete and sign Form IPT 1, Application for Registration, which can be obtained from our VAT Helpline (who also deal with IPT queries), or download from the forms section of the HMRC website at www.hmrc.gov.uk/businesses/index.shtml.
If you are a partnership, please make sure that you also complete Form IPT 2, which asks for name and address details of all partners. This forms part of your application to register.
When you have completed and signed the Form IPT 1 - and Form IPT 2 if appropriate - please send the form(s) to the IPT Central Collection Unit in Southend.
you do not need to charge or account for IPT on that contract (see paragraph 13.8).
If all your policies fall into this category, you are still required to notify your liability to register for IPT because you will be receiving taxable premiums. You must do this on Form IPT 1. However you may apply for a waiver from rendering returns so that you do not have to charge IPT or complete return forms. You should confirm that you expect all your taxable insurance business to be below the de minimis limits.
Even if granted this waiver, you remain a registrable person and we may contact you periodically for assurance that all the business you write still falls under the de minimis limits. You must also monitor this yourself and contact HMRC as soon as you write any business which does not fall within the de minimis limits so as to avoid any retrospective liability to tax and (if you are assessed) interest and penalty on that tax.
You should receive your certificate of registration within three weeks of sending in your Form IPT 1. This will give your IPT registration number and show your date of registration. It will also tell you when your first IPT return is due.
When you receive your registration certificate, please check that all your details are correct. If there are any errors, contact our VAT Helpline. They will make sure you receive an amended certificate.
While you are registered you should notify HMRC, within 30 days, of any changes in your business which may affect your registration. This will help HMRC to keep our records up to date and deal with your IPT affairs more efficiently.
If you do not notify us of changes in your registration details at the proper time, you may be liable to a financial penalty (see paragraph 18.1).
You are required to notify us within 30 days if, at any time, you cease to have the intention to receive taxable premiums or charge taxable intermediaries’ fees. This notification should be made to us in writing.
If you do not notify us at the proper time, you may be liable to a financial penalty (see paragraph 18.3).
A group of at least two corporate bodies may account for IPT under a single registration.
Corporate bodies are eligible to be treated as members of a group if:
For IPT purposes, one body controls another if:
An individual may be regarded as a controlling body if the individual holds control over the other bodies in the same way as a holding company.
All corporate bodies wishing to be included in an IPT group must be “resident” or “established” in the UK. The condition of residency is usually satisfied if at least one director with full voting rights is resident in the UK and regularly attends board meetings. The term “established” applies where a body has an “established place of business” in the UK. This condition is usually satisfied if:
If you wish to apply for group treatment, you must nominate one of the corporate bodies to act as the “representative member”. The representative member must fill in Form IPT 1 Application for Registration and Form IPT 50 Application for Group Treatment. Form IPT 51 Group Member Details must also be completed and signed by all group members. These forms can be obtained from the IPT Central Collection Unit in Southend.
If you are allowed group treatment, the following conditions will apply:
Important: You must account for and pay IPT on all taxable premiums charged within an IPT group, unlike most instances of group treatment for VAT.
If you are a partnership, each partner will be jointly and severally liable for all obligations and liabilities in relation to IPT. This includes notifying liability to register.
If you are an unincorporated body, all obligations and liabilities (including notification of liability to register) shall be the joint and several responsibility of:
But it will be satisfactory if one of the above meets the obligations and discharges the liabilities of the unincorporated body.
If you are an insurer with no business or other fixed establishment in the UK and you are receiving, or you intend to receive, taxable premiums in relation to risks located in the UK, you register and account for IPT. You may appoint an agent to deal with your IPT affairs, or you can deal directly with us. These new options replaced the requirement to appoint a UK-based tax representative, which was withdrawn from 21 July 2008.
While it is preferable for you to nominate a UK-based agent to deal with your IPT affairs, you can have an agent based anywhere in the EU. We are unable to accept an agent based outside the EU. When you first register for IPT, record the agent's details on the registration form and sign the declaration authorising us to deal with that agent. You must obtain the authority of the agent to act on your behalf before doing so.
Your agent will not be liable for any tax that is due.
If you are already registered and wish to nominate a new agent you simply need to write in and tell us the name and address of the agent, the date from which they will act for you and confirm that you authorise us to deal with the agent. You must obtain the authority of the agent to act on your behalf before doing so. All your returns and other correspondence will then be sent to the agent and we will usually deal with them in the first instance.
In order to deal with your IPT affairs correctly, it will be necessary for you to have adequate systems in place to ensure that all returns and payments are submitted on time, though the agent will not be liable for any tax that is due. It will be necessary for you to be able to arrange for records to be made available in the UK should we need to see them, although, this might be arranged through your agent.
If you were acting as a tax representative for an overseas insurer prior to 21 July 2008 you remain jointly and severally liable for any tax due before that date. However, if you continue to represent the overseas insurer you will not be liable for any tax due after that date. We will already have authorisation in place for you as a tax representative and will continue to treat you as agent of the insurer after 21 July 2008 unless we are informed otherwise.
Insurers have the option of appointing an agent or dealing with us directly. Newly registering insurers can tell us which option they wish to use on the IPT1 registration form. Insurers who are already registered and use an agent can write in and tell us that they wish to deal with us directly with effect from a specified date. We will then send IPT Returns and other correspondence directly to you. It will be necessary for you to arrange for your records to be made available in the UK should we need to see them (which, depending on the circumstances, may involve no more than you posting a selection of specified records to us).
We accept payments from UK bank accounts by electronic transfer via direct debit, BACS or CHAPS and we would encourage you to use one of these methods. Where you do so, you can register to join our credit transfer scheme which gives you an additional 7 days in which to make your payments. We are also able to accept payment by cheque in Euros or other foreign currencies in addition to Sterling. However, where you choose to pay in a foreign currency, any exchange rate fluctuations will be borne by you and could lead to your payment to us being short, making you potentially liable to a penalty. Regardless of the currency used for payments the return form must be completed in sterling only.
A Lloyd’s syndicate may be registered for IPT rather than each individual member. The registration will be made in the name of the syndicate, or if the syndicate is not known by a name, registration will be made by reference to any number or identifying feature used by the syndicate.
Each registration covers all the taxable insurance business carried on by the registered person. This person can be a sole proprietor, a partnership, a limited company, an unincorporated body, a Lloyd’s syndicate or some other body.
If you are already registered for IPT and you become liable in respect of another insurance business, you do not need to register your new business separately. You should inform us so we can amend your records.
If you are not already registered for IPT and you are taking over a registered business as a going concern - buying the business without causing any significant break in trading - and the business will continue to receive taxable premiums after the transfer date, you must register for IPT. This also applies if you are registered for IPT and you change the legal status of your business.
You can, if you wish, ask to use the existing registration number of the business, but you and the previous owner must both agree to certain conditions. If the number is transferred you will become responsible for all existing IPT liabilities of the previous owner. The conditions of transfer are explained fully on Form IPT 68 Request for Transfer of a Registration Number, which you should fill in if you wish the number to be transferred. You can request this form from the IPT Central Collection Unit in Southend. You must also complete Form IPT 1 to notify your liability to register.
If you do not wish to use the existing number, you must still notify your liability to register on Form IPT 1. You will then be issued with a new IPT registration number. In these circumstances, the number used by the previous owner of the business will be cancelled.
Normal commercial practice is for the previous owner of the business to transfer records to the new owner. In these circumstances, the requirement for the previous owner to keep IPT records for six years will be waived.
If you are a captive insurer (an insurance company set up to insure or reinsure all or part of the risks of your parent or founder) receiving taxable insurance premiums, you will have to register and account for IPT. If you do not have any business establishment or other fixed establishment in the UK, you have the option of dealing directly with HMRC or appointing a UK or EU-based agent to act on your behalf. See Section 11.3 for more information.
Once you are registered for IPT, you will be given your date of registration and you must account for IPT from this date. You must account for IPT in the accounting periods in which the tax point occurs.
The tax point is the trigger to account for IPT, and tax is due one month after the end of the accounting period in which the tax point occurs (see paragraph 16.1.3). The tax point depends on whether you are using the cash receipt method (see paragraph 12.3) or the special accounting scheme (see paragraph 12.4). The tax point is the date the premium is:
Taxable intermediaries may only use the cash receipt method.
Whichever method you choose, you must account for tax using this same method in respect of all taxable insurance contracts you enter into (or, if you are a member of a group for IPT purposes, all taxable insurance contracts entered into by your group).
We will expect premiums to be written into accounts without undue delay.
Under the cash receipt method, the tax point is when you receive taxable premium payments or when they are received on your behalf. Any premium payment received under a contract of insurance by any person on your behalf (whether an agent or not) is treated as being received by you. The subsequent transfer of a payment relating to the premium or part of a premium to you by that person will then be disregarded for the purposes of IPT.
Under the special accounting scheme, the tax point is the date when your accounts show the premium due to you (the “written premium” date). For example:
You can also use the date you enter the premium as the trigger to account for tax. For example:
If the date on which you enter the premium into your records is before the date as at which a premium is due to you, then using the date of entry as a tax point may result in accounting for tax before it is legally due. As long as you adopt a consistent practice you may either account for IPT on these transactions on the correct IPT return or, for administrative simplicity, account for them in the earlier tax period. For example:
If you find it difficult to account for tax at the legal tax point described above or in paragraph 12.4, you should discuss using an alternative tax point with us. An alternative tax point must be applied consistently and if there is evidence of manipulation or abuse, we may withdraw any individual agreement with an insurer.
Yes. If you wish to change your method you must seek approval from us. You cannot change from the special accounting scheme to the cash receipt method until after a year.
Whatever method you adopt, it must meet certain time limits for bringing the tax to account. To ensure that there is no undue delay in accounting for tax, you must normally write the premium within 90 days of the premium being received either by you or on your behalf.
As part of our checking process, a number of tests will be applied, and HMRC will expect to see the premium written in the same accounting period as the earliest of:
The last of these guidelines does not apply to types of insurance where it is normal for there to be a delay of more than 30 days between the commencement of the cover, and the notification to the insurer by the intermediary arranging the insurance that cover has commenced. (For example, where an insurer has granted delegated authority to a broker to accept business on behalf of the insurer, and the broker notifies the insurer periodically about who is covered).
If you have problems in complying with the guidelines above (because of the business you write, or because they present difficulties for your accounting system) you should contact our National Advice Service.
There are two rates of tax, the:
These percentages are applied to the chargeable amount for IPT (see paragraph 3.2), which includes any commission paid to (or retained by) brokers and other intermediaries out of the premium.
The formula for extracting IPT from a tax-inclusive premium (the “tax fraction”) is as follows:
Under the special accounting scheme you will account for additional premiums on the date of entry into your records. This applies whether an additional premium is charged in relation to a new risk or because the initial premium relating to the original risk could only be estimated. If you cannot account for tax on additional premiums at the correct tax point (see paragraph 12.2 for information on tax points), and you wish to use an alternative trigger date (such as the inception date of a policy if this is different) you should consult us.
Under the cash receipts method you will account for the additional premiums when you receive them or when they are received on your behalf.
If you use the cash receipt method, you will account for tax on each instalment payment received.
If you use the special accounting scheme, you will account for tax on the date you show the premium as due. If you chose an alternative tax point (see paragraph 12.5), such as date of entry, tax will be due each time an alternative tax point occurs. Whatever the tax point you use, if the premium is written into your accounts as a single amount at inception then tax is due on that amount, in full, even if the option of payment by instalments is offered. However, if the premium is written on, for example, a monthly or quarterly basis to tie in with actual receipt of premiums, then tax will be due each time a premium is written.
Under the cash receipt method:
Under the special accounting scheme:
Where premium payments are made in a foreign currency, such payments should be converted to sterling on the date of receipt of cash or the date as at which the premium is written (or any other consistently applied and approved tax point if you are using the special accounting scheme) - using the period rate of exchange published by us. If this is impractical, an alternative method and date may be agreed with us (the same exchange rate as that used by an insurer for Value Added Tax partial exemption calculations would usually be acceptable). We would expect insurers to adhere consistently to any alternative rate agreed.
If the discounted amount is what is due under the contract of insurance, you should account for tax on this amount. An example of a reduced premium being due under the contract of insurance is an insured party qualifying for a discount because of a no claims bonus.
However, if you operate the special accounting scheme and write the full value of the premium in your accounts, then IPT will be due on the full amount of the premium written, even if you offer a discount (showing the value of the discount as a return premium). However, credit would be available in relation to the discounted amount.
If you, as an insurer, sell a taxable insurance contract through a broker or agent and you do not know the final selling price of the insurance, you should obtain the information you need to compile your IPT return accurately from your intermediary. If this is not possible, or proves difficult in the short term, you may estimate the gross premium. Estimation should be based on a representative sample of the final selling prices charged by your intermediaries. You should agree any estimation with us.
There are special arrangements for accounting for IPT on premiums relating to terrorism insurance where more than one insurer underwrites the risk. Where a property risk is co-insured, the lead company is responsible for collecting and remitting the entire terrorism premium exclusive of IPT to Pool Reinsurance Company Limited (Pool Re) - the Government reinsurer established under the Reinsurance (Acts of Terrorism) Act 1993. Follower insurers never receive their share of the terrorism premium, although they are liable to account for tax on such premiums under the IPT legislation.
As an administrative concession, lead insurers may account for, and pay, all the IPT on terrorism premiums which they receive. Followers will not need to account for IPT on their shares of such premiums when the leader has done this. Followers will, however, remain liable for their share of the tax should the leader fail to account for, or pay, the tax to us.
This concession does not apply in cases where, as an alternative to the broker remitting the entire premium to the lead insurer for onward transmission to Pool Re, the relevant London Market policy signing office allocates the IPT - inclusive premium to the follower insurers who should account for this IPT on their IPT return for the relevant period.
A syndicate should make returns on its own behalf unless it has elected for Lloyd’s to act as its representative.
The obligations and liabilities of a Lloyd’s syndicate in relation to IPT are the joint and several responsibility of the:
A syndicate which is registered for IPT and which has elected to use the special accounting scheme may elect that Lloyd’s will act for it in accounting for IPT. In these circumstances, Lloyd’s is also jointly and severally responsible for anything that is required to be done in relation to IPT.
If a syndicate opts for Lloyd’s to act as its representative, a notification should be made to us (this may be done at the time of notifying a liability to register by ticking a box on Form IPT1). You should specify the date of the first accounting period in which Lloyd’s will act as representative. An election for Lloyd’s to act as a syndicate’s representative will remain in force until after the end of an accounting period in which the syndicate:
If a syndicate writes business that is not handled by the Lloyd’s central accounting system, it may elect for Lloyd’s to act as their representative provided that all such business is reported to Lloyd’s.
Lloyd’s will not act as representative in accounting for any syndicate which writes primarily motor business.
Lloyd’s will account for tax by means of a composite return (Form IPT 100L) for each accounting period, on behalf of all syndicates which have elected for Lloyd’s to act as their representative. The composite return will be accompanied by a summary schedule of participating syndicates on Form IPT 100L(S).
If you write a policy which has elements relating to both exempt and taxable risks, or risks taxed at different rates, then you will have to calculate that amount of the premium which relates to each element of the risk. Although you may do this by consulting with the broker or the insured party, you the insurer are responsible for ensuring that the final apportionment is made in a just and reasonable manner.
N.B. There is no scope for apportionment of taxable intermediaries’ fees (see paragraph 2.4.4 for more information).
This table contains some examples of possible apportionment methods for common types of policy. Whether you use one of these examples, or an alternative method to apportion a premium, you must be able to demonstrate to us that the method used gives a just and reasonable result. You should ensure that the apportionment is not arbitrary and is based on firm, verifiable information. The method of apportionment used must have some relationship with the risk being covered. See paragraph 15.1 for information about the records you are required to keep.
Buildings and/or contents
Value of UK property
Value of all property insured
This formula can be used where a policy covers buildings situated both inside and outside the UK, and separate premiums are not quoted for each building.
No of vehicles registered in the UK
Other World-wide Risks
Turnover of UK establishments
Number of UK directors/officers
Number of non-UK and UK directors/officers
Number of employees in UK
Examples of other world-wide risks include insurance against:·
business interruption, professional indemnity and product tamper,
public, employer's, product; and·directors' and officers' liability
employers’ policies covering employees for personal accident,
fidelity guarantee cover (held by an employer to cover against theft by employees).
MAT - marine cargo cover
Number of intra-UK journeys
This formula can be used if the policy covers journeys world-wide, including some which are totally within the UK (and thus taxable).
The location of risk rules (paragraph 5.2.1) give more information about when a building, a vehicle or an establishment is in the UK.
Where the policyholder is a private individual, no apportionment is necessary unless the policy covers:
because the risk is located where that individual habitually resides (see point (d) in paragraph 5.2.1).
However, where the policyholder is a business, apportionment of the insurance policy often depends on the location of its establishments (see paragraph 5.2.5). It will be necessary for the insurer to demonstrate that there is a clearly identifiable risk attaching to the establishment for apportionment to be applicable.
For example, a manufacturer might have a factory in the UK and two sales offices abroad. If the manufacturer takes out a manufacturer’s product liability policy it may be apportioned to reflect the fact that the manufacturer sells abroad and, crucially, has establishments there. (A product liability policy may not be apportioned to reflect sales abroad if there is no non-UK establishment).
Where a UK company takes out insurance to protect capital it has invested in an overseas subsidiary in case of loss as a result of a political act such as nationalisation, the risk does not attach to the overseas subsidiary but to the investment made by the UK company and the premium is liable to IPT.
Whatever the method you use for apportionment, you should ensure that you keep the following information:
As part of our audit of your IPT systems we may wish to make selective tests on the credibility of apportionment calculations.
You are required to apply an apportionment using a “just and reasonable” method. In many cases the method to apply will be routine and self-evident. In other cases you may need to devise a method tailored to the particular circumstances of a policy. In cases giving rise to doubts or difficulties you are advised to consult us to obtain approval for a method, although this is entirely optional.
Where a policy covers a number of different risks (for example, property, vehicles and product liability), you may wish to apply a different apportionment method to each part of the policy. Again, as long as this is done on a basis that is “just and reasonable”, this is acceptable.
It is open to you or to us to review any apportionment method at any time. Where your apportionment method(s) has been agreed with us, any proposed changes should be discussed between the parties. Such changes will normally be made by consensus but, in any event, will not give rise to a retrospective liability to tax (except in cases of arithmetical or similar errors). You will, of course, be expected to notify us should, at any time, the agreed method(s) cease to be just and reasonable.
Where we are considering an apportionment method for the first time and, exceptionally, consider an alternative method to be fairer, we will nevertheless not normally seek to apply our method retrospectively unless the:
Where these parameters are exceeded and an assessment is issued it will be for the full amount that, in our best judgement, is underdeclared.
If you and your insured decide to split the cover under a mixed policy into two or more separate policies (each bearing a different tax treatment) to avoid the need for apportionment, each separate policy must carry a premium which is independent of the premium on any other policy. That is, it must be set at open market value. In order to prevent schemes which undervalue premiums, we may direct that IPT should be charged on the premium that would have been charged in “open market conditions” (see paragraph 3.2.1).
Where several insurers are involved, the lead insurer will normally be expected to make the decision about how much of a premium relates to each element of the risk that has a different tax treatment. Co-insurers will normally follow this lead, although, on the basis of the information available to them, each co-insurer is also responsible for ensuring that any apportionment is just and reasonable. Where co-insurers have followed such a lead and an underdeclaration of tax is later established, both the lead insurer and co-insurers will still be liable for any IPT undeclared on their portion of the risk, plus any interest. The liability of each insurer for tax, interest and penalties will be limited to each insurer’s share of the risk.
If you are the lead insurer in a co-insurance arrangement you are responsible for retaining the paperwork to demonstrate to us that any apportionment is done on a just and reasonable basis. If, as a co-insurer, you are given information on how an apportionment was made, you should retain it for production to us if requested.
Please note that the de minimis concession is in the process of being formalised into the IPT legislation. Once that is complete the ESC will be withdrawn. The new legislation is intended to exactly replicate the ESC, and so an insurer will not have to alter any of their current practises in this area.
then the contract meets the de minimis limits, and you need not account for tax on that contract. This is known as the de minimis concession.
You may use any basis to apportion a policy to see whether it falls below the de minimis limits, as long as the method is just and reasonable. The use of the de minimis concession is optional for insurers.
In co-insurance arrangements, the entire premium is subject to the de minimis test and not just that proportion of the premium, which relates to the risk underwritten by each co-insurer.
Where a policy covers different risks (for example, property, vehicles and product liability), you may not split the policy into its component parts (such as property, vehicles, etc) with a view to applying the de minimis limits to the component parts. (You may, of course, split the cover into two or more separate policies to avoid the need for apportionment at all, as indicated in paragraph 13.6).
Insurers who plan to use the de minimis provisions will need to assess at the outset of cover whether the contract is likely to be de minimis. For fixed term contracts, the de minimis test must be applied to the totality of premiums due during the period of the contract. For open covers the two parts of the de minimis test must be applied on a consistent annual basis.
If you only underwrite business where each policy falls under the de minimis limits, you may apply for a waiver of registration, but you should nevertheless notify us of the fact that you are writing taxable insurance business (see paragraph 10.4).
Once you have made the decision about whether to treat a contract as de minimis, the figures upon which the decision was based may be altered by the receipt of additional premiums or by return premiums:
Where additional premiums are a regular feature of the policy, for example under marine cargo and goods in transit insurance, the variations in cover may make it difficult for you to monitor the 10 per cent limit each time a premium is received. In these cases, therefore, once the initial decision on whether to treat a contract as de minimis has been made, you need not consider every additional premium with a view to determining whether or not it has taken the premium over the 10 per cent limit. Instead:
- - at the end of the contract; or
- prior to charging the final additional premium (if it eases IPT collection difficulties).
- at least annually, and
- agreed with HMRC.
Where there is an additional premium which:
you should account for all tax due under the contract to date on the tax point (see paragraph 12.2) of that premium.
If there is no premium which clearly takes the contract outside the de minimis limits (i.e. the contract is of the kind described in paragraph 13.8.3), you should account for all tax due under the contract to date on the tax point of:
Two examples may be useful here in illustrating the operation of the rules in paragraph 13.8.4:
Where an annual policy covering property worldwide is amended after 6 months to include a UK building, it may be clear that this puts the taxable UK element of the premium above 10 per cent of the total premium. In such a case, it meets the conditions of paragraph 13.8.2 and the insurer must account for the total amount of tax using the date of entry of the additional premium as a tax point, rather than waiting until the end of a period of cover.
Where the cumulative effect of routine additional premiums under a marine cargo or goods in transit policy takes the premium over the 10 per cent de minimis limit, it is the kind of policy described in paragraph 13.8.3, and the tax point for all tax due will be the date of entry or date of receipt of the final additional premium of the contract or the last additional premium before the agreed regular review of the 10 per cent de minimis limit.
Under this type of policy, the impact of individual premiums will be disregarded for tax point purposes until the end of the contract or the annual review, unless they:
The tax rates, since the introduction of IPT, are:
The standard rate:
The higher rate:
This is the date that the change is announced by a Minister (usually Budget Day). (See paragraph 14.8 for previous announcement dates)
This (sometimes known as the “date of the change”) is the date that the change comes into effect, as announced on the announcement date. The previous implementation dates are shown in paragraph 14.8 as the date the changes took effect.
Where a concessionary period is granted in connection with a rate rise, this is the date (also announced on the announcement date) on which the transitional period ends; where the tax point under the special accounting scheme (see paragraph 12.4) takes place after the concessionary date, the new rate applies irrespective of when the policy incepted. See paragraph 14.9 for previous concessionary dates.
This is the date when the period of cover under an insurance policy begins.
Under the cash receipt method of accounting (see paragraph 12.3), all taxable premiums received on or after the implementation date (see paragraph 14.2.2) of a rate change will bear the new rate of tax. Any premiums received before the implementation date will be subject to tax at the old rate (unless the anti-forestalling measures mentioned in paragraph 14.7 apply.) Premiums received on or after the implementation date in relation to a policy taken out before that date will be subject to tax at the new rate.
If a concessionary period is granted when the rate of tax changes, then, under the special accounting scheme (see paragraph 12.4), there is a concessionary period; this is known as the “transitional period” ending on the concessionary date (see paragraph 14.2.3).
During this period, the old rate of tax will apply to taxable premiums for contracts which are have an inception date (see paragraph 14.2.4) before the implementation date (see paragraph 14.2.2) of a rate change (even if the contracts are written on or after that date), provided the tax point for those premiums occurs before the concessionary date (see paragraph 14.2.3).
The new rate of tax will apply to all taxable premiums for contracts with an inception date on or after the implementation date of a rate change.
All taxable premiums, regardless of the inception date of the contract to which they relate, that have a tax point after the concessionary date will be subject to the new tax rate.
Anti-avoidance measures help prevent abuse of the statutory transitional period when additional premiums are received in relation to a taxable insurance contract at or around the time of a rate increase.
The intention is to prevent new risks, which would normally be the subject of a new policy, being added to existing contracts and thereby benefiting from the old tax rate rather than the new rate.
The concept of normal practice is the insurer’s normal practice and not the market’s normal practice. If there is any attempt by an insurer to misrepresent their normal practice so as to benefit form this approach, we will consider assessing for any tax underdeclared.
Under the cash receipt method, any additional taxable premiums that are received on or after the implementation date (see paragraph 14.2.2) will be subject to tax at the new rate notwithstanding the contract inception date (see paragraph 14.2.4).
If a concessionary period has been granted, then under the special accounting scheme, any taxable premium instalments written on or after the implementation date (see paragraph 14.2.2), but which relate to contracts with an inception date (see paragraph 14.2.4) before then, are liable to tax at the old rate provided that the:
If a concessionary period has been granted and you receive a request to extend a policy that incepted prior to a rate change, and you write the premium in the transitional period, then any additional premium called for in relation to that extension may be treated as liable to tax at the old rate unless the:
For example, if a policy is extended to bring the period of cover into line with a client’s other insurance policies, and the additional premium is written before the concessionary date, then that premium will be liable to IPT at the old rate. If, however, the extension has been made to avoid IPT at the new rate and the risk would normally be covered by a new contract, the additional premium is liable to IPT at the new rate.
Tax credits on return premiums should be claimed at the IPT rate applicable to the original premium where this can be established. Where this is not possible, you should use an estimation process that can be shown to give a reasonable result based on the specific circumstances in question.
Special arrangements have been made to prevent tax avoidance during the period between the announcement date (see paragraph 14.2.1) of a rate rise and the implementation date (see paragraph 14.2.2) for that rate rise.
Certain premiums received or written during this period are deemed to be received or written on the date of the rate change, and are subject to the new rate.
These provisions apply to advance payments and extended cover. Similar anti-forestalling provisions also apply in relation to the transitional period under the special accounting scheme.
those premiums will be deemed to have been received or written on the implementation date (and will accordingly be subject to the new rate of tax).
This will not apply if the insurance is of a sort where it is the insurer’s normal practice for premiums to be received or written before the date when cover begins.
the premium will be apportioned between that relating to cover up to the first anniversary of the implementation date and that relating to the remainder of the policy, with tax at the new rate on the latter portion becoming due on the date of the rate change.
These provisions will not apply to contracts where the type of insurance normally covers periods exceeding 12 months. Examples of the type of contract that normally offer cover for a period exceeding twelve months include:
(see paragraphs 14.2.1 and 14.2.2)
For the purposes of the anti-forestalling provisions the announcement dates are as follows:
Date the changes took effect
1 April 1997
27 November 1996
1 August 1998
17 March 1998
1 July 1999
9 March 1999
4 January 2011
22 June 2010
(see paragraph 14.2.3)
The transitional periods for the rate changes were as follows for:
In order to show the insurance premiums received or written in the course of your business, and any variations in premium value which may affect the IPT you have to account for and pay, you should keep the following records from the time of your registration:
You do not have to keep the records in any set way but you may find that it will help you to complete the IPT return if you summarise your records every quarter. If you do this, you may find that it is useful to retain the summaries so that we are able to check the figures you have used. Similarly, if you are a taxable intermediary (see paragraph 2.4.3), you should keep records of any business transactions affecting the amount of IPT you have to pay, including details of all taxable intermediaries’ fees.
You must normally keep your business records for 6 years. If, however, this causes you storage problems, involves you in undue expense or causes you other difficulties, you can ask our VAT Helpline (who also deal with IPT queries) if you can keep some of your records for a shorter period. Small businesses with limited storage space may find this particularly useful. You must get our agreement before any of your business records are destroyed before 6 years.
When asked to do so, you must produce the records for inspection so that we can confirm that the correct amount of IPT has been paid. You may find that it will help you to complete your IPT returns if you summarise your records every three months.
You may keep your records in hard copy, or electronically provided that copies can easily be produced and there are adequate facilities for allowing us to view them when required.
Once you are registered for IPT you will receive regular IPT returns. One of these will be sent to you every three months. You must use this form to account for the IPT due on the premiums with tax points in the tax period covered by the return (see paragraph 12.2).
This form must also be used to account for taxable intermediaries’ fees (see paragraph 2.4.4) which you have received during the tax period.
The period covered by the return is called a tax period or an accounting period. As tax periods end on fixed dates throughout the year, your first IPT return may not be for exactly three months. The normal length of an accounting period is three months although at the time you register for IPT, or at any other time, you may request specially tailored accounting periods. We will normally agree to such requests but where this is not possible, or where we wish to vary the length of your accounting periods, you will be advised in writing of the reason for the decision.
You should complete each return in full, inserting the details of premiums received or written, and the IPT due. You should note that there are separate boxes on the form for the two different rates of IPT. You should use these to distinguish between the standard rate and the higher rate. There are guidance notes on the back of the form to help you complete it. Please send the completed return, together with any payment due (unless you are paying by direct debit or credit transfer) to the address shown on the back of the return.
The return must reach us by the due date shown on the front of the form. This will be the last day of the month following the end of the relevant three-month accounting period (see paragraph 16.1.1) - for example, for the accounting period ending 31 March; the due date will be 30 April.
You must send in your IPT return and any payment due, to arrive by the due date shown on the return. If you fail to do this you could be liable to a penalty (see paragraph 18.2).
If you fail to make a return when it is due or make an incomplete or incorrect return, we have powers to assess, to the best of our judgement, the amount of tax you owe. VAT Notice 915 Assessments and Time Limits sets out our procedures for making and notifying assessments.
Assessments are not issued more than four years after the end of the relevant tax period unless there are special circumstances, such as fraud. In these special cases the period of assessment is limited to 20 years. If you are issued with an assessment which we or a Tribunal later find to be too low, the amount of the assessment can be increased.
The assessment time limit changed from 3 to 4 years with effect from 1 April 2010 for relevant tax periods ending on or after 31 March 2007. Statutory instrument 2010/867 - The Finance Act 2009, Schedule 51 (Time Limits for Assessments, Claims etc.) (Appointed Days and Transitional Provisions) Order 2010 - gave effect to this change. These provisions ensure that the changes do not allow assessments and claims etc. that are already out of time on 31 March 2010 to be bought back into time and that the changes do not cause assessments and claims, etc. that are in time or not time-barred on 31 march 2010 to be out of time.
If you repeatedly pay assessments instead of sending in IPT returns, the amount for which you are assessed will be increased with each assessment.
If you are adjusting for an error, you may do so on your IPT Return provided:
Prior to 1 July 2008 the above limit for making an adjustment for an underdeclaration or overdeclaration was £2,000 or less.
Where the amount to be adjusted is greater than these limits, or a repayment would unjustly enrich you (see paragraph 17.3), you should contact in writing your local HMRC IPT office which is shown on your certificate of registration for IPT.
Errors discovered in relation to accounting periods beginning on or after 1 April 2009 where the due date is on or after 1 April 2010 may be liable to a penalty if they are careless or deliberate. This also applies to errors corrected via the error correction procedure. If an error is deliberate and concealed this is the most serious level of behaviour and can result in a greater penalty being imposed.
You will not be liable to a penalty if an error was not made carelessly or deliberately.
Please see paragraph 18.8 below for more information about inaccuracy penalties.
Subject to arrangement in advance with us you can pay your IPT by any of the following methods:
If you use one of the last four methods mentioned above, you must send in your return by the due date, but you are allowed an additional 7 days in which to make your payment. If you pay by cheque it should be crossed and made payable to HMRC.
Yes. You will normally be sent returns for calendar quarters ending March, June, September and December. But if you wish, you can ask for your returns to match your financial year. Please send in a written request with your Form IPT 1 Application for Registration.
If you have paid money to us as IPT in error, you may claim it back. But there are certain restrictions which apply, and which we may use as a defence against any claim you make.
We will not be liable to repay any amount paid to you more than four years before a claim is made.
HMRC will not be liable to repay any amount claimed if that repayment would unjustly enrich the claimant.
Where your customers (the “final consumers”, usually the insured persons or policyholders) have, for practical purposes, paid the IPT charged in error, your business would be unjustly enriched at their expense if, by not passing the refund back to them, your business would benefit as a result.
The reimbursement scheme (the “scheme”) may be used to claim a repayment, but only where you accept that, by receiving a refund of sums overpaid as IPT, your business would be unjustly enriched at your customers’ expense. In such cases, a refund of overpaid IPT will only be made if you agree to reimburse those customers in accordance with the terms of the “scheme” and notify us of this at the time of making your claim.
The scheme can be used by all insurers or taxable intermediaries currently registered for IPT who wish to refund to their past customers (usually the insured or the policy holder) any money they overpaid as IPT.
The scheme can also be used by those insurers or taxable intermediaries who are no longer registered for IPT; they are subject to the same terms and conditions as those who are registered for IPT.
The existence of the scheme does not affect your right to claim that the refund would not unjustly enrich you. If we reject your claim on the grounds of unjust enrichment, you may ask them to review this decision and, if you remain dissatisfied, you have the right of appeal to the Tribunal. If the Tribunal finds in our favour, the option will still be available for you to use the scheme, if you so choose.
The scheme can also apply to part of a claim. In certain cases you may not have passed on to your customers the cost of all the IPT charged in error, because for commercial reasons you chose to absorb some of it.
For example, you could submit a refund claim for £50,000, and agree that £30,000 was passed on to your customers, but ask to be allowed to keep £20,000 because you absorbed that amount from your profits. In such circumstances only £30,000 would be subject to the scheme. We would consider the £20,000 claim separately on its merits.
You can also ask to be allowed to keep a part of the money which relates to business losses you have suffered as a result of mistaken assumptions you have made about the tax.
A refund under the scheme will only be made to you if you agree to these conditions:
Your customer is the person who paid for the insurance cover, and is usually the insured or the policyholder (or both).
We would normally expect you to have the scheme ready to implement when they receive your signed undertaking and to have begun contacting customers straight away, rather than waiting until well into the 90 day period before doing this. A late start to refunding the money without good cause will not be seen as a valid reason for extending the 90 days refund limit.
Where the sums being reimbursed were overpaid because of an error by us, statutory interest will be paid. Any statutory interest paid under this scheme is subject to the same terms and conditions as any other money returned under the scheme and must be refunded to consumers. This is because it is the consumer who did not have use of the money, not the claimant who collected it from them to pay to us.
Interest is calculated on a simple, rather than compound, basis.
Any statutory interest must be refunded in full, any residue must be returned to us within the specified time limit of 14 days.
If you have problems working out how much interest is due to your customers, we can provide a print out of the statutory interest calculation, which shows interest on a period by period basis. You will then be able to divide interest payable for a particular period into the amount overpaid for the same period. This should determine approximately what is due to consumers for a particular period.
To ensure that you are refunding the consumers in the agreed manner, we will ask to see your “scheme” records. We will give written notice of our intention to see these records.
Any costs you incur in administering the scheme must not be taken out of the refunds. If you do we will assess for its return.
“I, the undersigned, can identify the names and addresses of consumers whom I intend to reimburse. I will repay to these persons, in cash or by cheque, all the money I receive from HMRC (including associated interest)* without any deduction, for whatever purpose, within 90 days of receiving the money and understand that I cannot use the money for any other purpose. Furthermore, any money I have not repaid to consumers will, without reminder, be repaid to HMRC within 14 days of the 90 days expiring, I will keep the necessary records as set out in the Regulations and I will comply with any notice given to me by HMRC about producing the records I am required to keep.”
* Delete where not applicable.
Penalty for failure to notify where you are required to notify HMRC that you should be registered before 01/04/2010.
If you fail to notify us of your requirement to be registered at the correct time (see paragraph 10.2) you may be liable to a penalty equal to £250 or 5% of the relevant tax, whichever is the greater. The relevant tax is the tax for which you are liable for the period from either:
• the date you are required to be registered to the day before we actually receive notification of your liability to be registered, or
• the date you are required to be registered to the day before we became aware of your requirement to be registered.
You will, of course, also have to pay the tax involved. You will not be liable to a penalty, however, if you can satisfy us (or, on appeal, a Tribunal) that you have a reasonable excuse for the failure.
Penalty for failure to notify where you are required to notify HMRC that you should be registered on or after 01/04/2010.
You will be liable to a late notification penalty based on the same requirements to notify liability to be registered as before 01/04/2010.
However, if you discover that you should have notified HMRC and inform us, we will allow reductions for this disclosure.
The more you tell HMRC and help to establish the amount of tax due, including giving access to your records, the more the penalty can be reduced.
You can find more information on how a failure to notify penalty is calculated (or how it may be reduced) in factsheet CC/FS11 - compliance checks - Information about penalties from the HMRC.
Penalty for failure to notify a change in registration particulars.
If you fail to notify us about a change in registration particulars, on time, you may be liable to a penalty of £250 (see Para 10.6).
You are required to submit a return and pay the tax due within one month of the end of the accounting period (that is by the “due date” - see paragraph 16.1.3). If a return is not rendered by the due date, the tax due will be assessed. Failure to either submit a return or pay the tax due by the due date will render you liable to a penalty of -
The greater of:
and a penalty of £20 for every day after the due date that failure to pay the tax due or failure to render the return continues.
If you have chosen to pay by direct debit or credit transfer, although you will still be required to submit a return by each due date, you will be given an extra 7 days to make your payment.
You must notify us within 30 days of the date on which you cease to have the intention of receiving amounts, which are subject to IPT. Failure to do so will render you liable to a penalty of £250.
If you fail to provide information or produce documents when required to do so by an information notice, you may be liable to a penalty of £300. If you have still not provided the required items by the time HMRC have issued this penalty, you may have to pay a further daily penalty of up to £60 a day until you do.
It is a criminal offence to conceal, destroy or otherwise dispose of any document we have asked for, or to arrange for it to be concealed, destroyed or disposed of.
Please take care when doing what our information notices ask. If you carelessly or deliberately provide inaccurate information or produce a document containing an inaccuracy, we may charge you a penalty of up to £3,000 for each inaccuracy. We will not charge you a penalty if you tell us about the inaccuracy at the time you provide the information or produce the document. If you later find an inaccuracy in a document you have given us you must tell us about it without delay.
If you are registered, or liable to be registered, for IPT before 21 July 2008 and were not resident in the UK, you were required to appoint a tax representative (see paragraph 11.3.1). Failure to appoint a tax representative within 30 days of becoming liable, or being required by us, to appoint a tax representative will render you liable to a penalty of £10,000. You will not be liable to a penalty, however, if you can satisfy us (or, on appeal, a Tribunal) that you had a reasonable excuse for the failure.
(This paragraph does not apply in Scotland.)
If you fail to pay any tax due, or any amount recoverable as tax due, a bailiff or an HMRC officer may visit your premises and levy distress upon your possessions, for example, equipment and vehicles. This procedure allows us to remove and sell your possessions if a debt remains unpaid. Provided that you give a written undertaking not to remove or allow the removal of those possessions, we may agree to leave them in your custody and to delay their sale. This is called a walking possession agreement. If you breach the agreement, you may render yourself liable to a penalty equal to half the tax due (or any amount recoverable as tax due).
You will not be liable to a penalty, however, if you can satisfy us (or, on appeal, a Tribunal) that you have a reasonable excuse for the failure.
If you are liable to be registered and do not have any business establishment or other fixed establishment in the UK, elsewhere in the EU or in any other jurisdiction with whom the UK has a special arrangement for the recovery of tax, then we may serve a notice of liability on any party insured by you. The insured(s) then becomes jointly and severally liable with you to pay any subsequent assessment of tax due. The insured party must pay the amount of tax which has been assessed, within 30 days of the date on which it was notified to them. Failure to do so will render the insured party liable to a penalty equal to 5 per cent of the tax assessed or £250, whichever is the greater; plus a daily penalty of £20 for every day the tax is unpaid.
Penalty for underdeclarations/failure to notify an underassessment for accounting periods starting on or after 01/04/2009 where the due date is on or after 01/04/2010
If we discover that you have under-declared IPT or over-claimed credit on your return you may be liable to pay a tax geared penalty based on a percentage of the amount of IPT under-declared or over-claimed.
This also applies if you fail to send in a return and then fail to tell HMRC that an assessment we send you is too low for that return.
In addition you will be liable to interest from the date on which the levy was due for payment until the day before the date shown on the assessment documentation. If you fail to pay this assessment on time you will also be liable for interest for the period from the day the assessment is notified until the day before the outstanding amount is paid in full.
You can find more information on how an inaccuracy penalty is calculated (or how it may be reduced) on factsheet CC/FS7 - compliance checks - Inofrmation about penalties from the HMRC website at www.hmrc.gov.uk/about/new-compliancechecks-htm.
By writing to us, you can ask for the application of any penalty to be reviewed (see paragraph 19.1).
If you are registrable for IPT and, for the purposes of evading IPT, you take or omit to take any action, and your conduct involves dishonesty, you will render yourself liable to a penalty equal to the amount of IPT evaded or sought to be evaded. You will also be liable to pay the amount of the IPT evaded or sought to be evaded.
If we make an assessment of tax due from you and the assessment is in respect of:
the whole amount assessed shall carry interest at the prescribed rate (you can obtain from us the rate currently in force). The interest will be applied from the reckonable date (see paragraph 18.11.2) to the date of payment of the assessment.
Where an amount is disclosed on an error correction notification (see paragraph 16.3) then, once we have issued an appropriate form, the whole amount involved is deemed to be assessed.
Where an assessment could have been made in respect of one or more of the above, if the tax due was paid before the assessment was made, then the whole of the amount paid will carry interest at the prescribed rate from the reckonable date until the date on which it was paid.
The reckonable date is the date on which a return is required to be made for the accounting period to which the amount assessed relates. However, if the assessment relates to overpaid credit, the reckonable date is the seventh day after the day on which a written instruction was issued by us directing the payment of the credit.
We will normally pay you interest if we make an error which has resulted in you paying too much IPT. You must apply to us in writing by making a formal claim within 4 years of our authorising payment of the amount on which the interest is payable.
Some penalties have a legal provision where a reasonable excuse may be considered by HMRC or the Tribunal.
A reasonable excuse cannot arise where:
• there are insufficient funds for paying any amount,
• any other person is relied on to perform any task.
After the failure to notify penalty comes into force on 01/04/2010 and there is non deliberate failure to notify in circumstances where the person had a reasonable excuse, and the excuse has ceased, they will be treated as having a reasonable excuse if the failure was remedied without unreasonable delay after the excuse ended.
HMRC is a revenue department, not a penalty department and is committed to helping insurers meet their obligations in IPT. Therefore in operating the penalty system for late rendering of returns or payments, we will apply the following provisions:
If you disagree with our decision about Insurance Premium Tax you may be able to:
• have your case reviewed by an officer not previously involved, or
• you can have your case heard by an independent tax tribunal.
If you opt to have your case reviewed you will still be able to appeal to the tribunal if you disagree with the outcome.
If you want a review you should write to us within 30 days of the date you were notified of the decision, giving the reasons why you disagree with our decision. You do not have to write to us yourself. An accountant or advisor can do this on your behalf.
You can find further information about appeals and reviews on the HMRC website or you can phone the helpline on 0845 010 9000. You can find out more about tribunals on the Tribunals Service website or you can phone them on 0845 223 8080.
Your Charter explains what you can expect from us and what we can expect from you. For more information go to hmrc.gov.uk
If you have any comments or suggestions to make about this notice, please write to:
HM Revenue & Customs
VAT Deductions & Financial Services Team
100 Parliament Street
London SW1A 2BQ
Please note this address is not for general enquiries.
For your general enquiries please phone our Helpline on 0845 010 9000.
If you are unhappy with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager.
For more information about our complaints procedures, go to hmrc.gov.uk and under ‘quick links’ select ‘Complaints’.
HM Revenue & Customs is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.
We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:
We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to hmrc.gov.uk and look for Data Protection Act within the Search facility.
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