London, England, June 22, 2010 – Independent consultancy FiscalReps is urging the insurance industry to take note of the increase in the rate of insurance premium tax (IPT) in today’s emergency Budget.
FiscalReps is the European market leader in IPT compliance services and Mike Stalley, the company’s founder, says: “The increase in the basic rate of IPT, from 5% to 6%, and in the higher rate, from 17.5% to 20%, is a significant piece of news. Overlooking this development could lead the insurance industry to make some costly compliance mistakes.”
In particular, says Stalley, insurers globally need to remember that IPT is calculated based on the location of the insured risk, even if the insurer and the main policyholder are based elsewhere. “So insurance companies located outside the UK, but covering risks here, can be affected by this IPT increase just as much as UK-based insurers. If you are an insurer receiving taxable insurance premiums on risks located in the UK, you must register and account for IPT.”
Although the economic cost of IPT is effectively borne by the policyholder, the tax is actually declared and paid to HM Revenue & Customs (HMRC) by the insurer. Stalley explains: “As the insurer, therefore, if you fail to calculate the IPT payment correctly when you draw up the policy, you will become liable for paying any fines that result from your error. Following the tougher penalty regime introduced by HMRC at the last Budget, any penalties are likely to be significant.”
IPT is an international indirect tax levied on taxable contracts of insurance issued by insurance companies and captives. (IPT covers many insurance classes. Rates can vary and some classes of business are specifically exempted.) IPT, or variations of IPT, is levied in many countries. One of the key challenges with IPT compliance is that there are many national variations in the way in which the tax is structured and administered.