IPT – Important Changes – ATE
The rate of Insurance Premium Tax (IPT) has remained constant at 6% for some 21 years, since the Finance Act 1994, and so it is perhaps with some surprise that the announcement was received earlier this year that the Government was considering increasing this long-standing rate.
The rate change, first mentioned in the Chancellor’s Budget in July 2015, received Royal Assent as part of the Finance Act 2015 and came into effect on 1 November 2015. So, what does this mean for practitioners?
The most important aspect is that the new rate, significantly increased to 9.5%, will apply to on premiums treated by the legislation as being received on or after 1 November 2015, thus any deferred premiums, whilst having on the face of the schedule a rate of 6%, will likely be liable to the increased rate, except where the insurer operates a Special Accounting Scheme. In this instance, the new rate is only applicable to premiums relating to risks covered by terms of a contract entered into after 1 November 2015.
However, from 1 March 2016, the new rate will apply to all premiums, regardless of when the contract came into effect.
It is easy to see that, if this guidance is not followed and the position confirmed with the relevant insurer, in any given matter the difference of 3.5% could be omitted from being recovered from a paying party, potentially leading to your client having to make up the shortfall. Such a shortfall could, potentially be significant, especially in multi-track matters where there is a substantial premium.
Practitioners would therefore be well advised to ensure that they are entirely clear as to the rate and thus the amount of IPT payable on any given premium when claiming their client’s costs and should therefore consult the relevant insurer.
Some well-known policy providers are set out below which may assist: