Insurance Premium Tax (IPT)

Most UK insurance policies are subject to IPT, but many insurance intermediaries and introducers don’t realise the significant cost and risk the tax presents.

Following several increases over a relatively short period, the standard rate of UK IPT is now a hefty 12%, with the higher rate of IPT 20%. With tight margins, a significant proportion of this IPT cost may be passed to the policyholder.

How we can help you with IPT

We have extensive experience helping across all aspects of IPT:

Working with insurance intermediaries to identify and achieve significant IPT cost savings
Managing IPT risk – including reducing bordereau and point of sale risks and advising on the IPT and VAT aspects of intermediary/underwriter agreements
Undertaking remedial work where errors have arisen, including considerable success in mitigating or eliminating penalties and interest
Working with policyholders to reduce their insurance costs by reducing their IPT
Reviewing policies held and liaising with insurance intermediaries and insurers to find and implement IPT cost savings
Advising on IPT issues more widely

For more information on how we can help you with IPT, speak to our team.

Frequently asked questions about IPT

I’m an insurance broker arranging car and home insurance policies. Why would I suffer any IPT cost when I just collect the IPT and pass it on to the underwriter?

We can answer this with an example:

Over 12 months, B Ltd, working on a net rated basis, arranges insurance policies with gross written premium of £11,120,000
B Ltd pays £8m net premium to U Ltd, plus IPT of £1.2m (which U Ltd pays to HMRC)
B Ltd, therefore, retains commission of £2,000,000
If B Ltd can reduce the IPT due by 30%, they will pay £8m to U Ltd plus IPT of £840k. This means that B Ltd receives £2,360,000. B Ltd can either retain the extra £360k or pass some or all of the saving to the policyholder

As an insurance broker, how can I achieve this, and wouldn’t it be considered aggressive?

There are many ways to reduce IPT – none of which are considered aggressive. One example that can potentially work involves distinguishing the elements of the insurance premium that relate to the insured risk from the elements relating to services provided alongside the risk cover and allocating premiums to different risks as efficiently as possible.

I’m an insurance broker, not an underwriter, so why would IPT be a risk?

In the above example, if B Ltd makes an error on the bordereau, stating that the IPT due is £84k instead of £840k, HMRC would assess U Ltd for IPT of £756k, a penalty of £225k and interest.

As is almost invariably the case with intermediary/underwriter agreements, B Ltd is liable to reimburse U Ltd for all these amounts under the terms of its agreement with U Ltd.

Another risk is anti-avoidance legislation: it’s relatively easy for an intermediary to be caught by legislation around vehicle, domestic appliances, and travel insurance – in which case IPT will be due at 20%, and the intermediary may be liable to register for IPT.

My business has a very large insurance bill, including IPT. Can I reduce this IPT cost?

From the policyholder’s perspective, it is essential to see where the IPT cost is arising and what IPT cost savings the intermediary or insurer can implement, with a view to a proportion or all of these being passed to the policyholder.