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IPT rise takes effect
Written by Deborah Ritchie
Millions of businesses and individuals in the UK will be hit with increased insurance bills as the government’s increase in Insurance Premium Tax (IPT) takes effect from today, 1 June 2017.
This rapid and unprecedented increase now means the rate of tax paid on most insurance policies has doubled in a period of just 19 months (from 6% in 2015 to 12%). Between 1997 and 2015, a period of 18 years, there were only two rate rises, taking the rate from 4% to 6%.
Chief exec of the British Insurance Brokers’ Association (BIBA), Steve White, said: “The Chancellor has indicated that more increases are possible, so this remains a massive cause of concern for our member brokers’ customers – who are also experiencing significant premium increases following government’s changes to catastrophic injury awards.”
This most recent hike has significantly added to the cost of policies as the government now rakes in over £7bn a year in IPT from UK insurance customers. White says the rise is counter-productive.
“Let’s be clear about this – it is a tax on protection and penalises those that take the burden off the state by showing responsibility and prudence. We feel this rise is counter-productive to what government should be doing and we’re calling for a freeze of the tax for the term of the next parliament,” White explained.
Small businesses face a considerable hike in the cost of doing business as a result of this increase, and in recent research conducted by BIBA, 90% of insurance brokers anticipated that a further rise in the tax on insurance will mean clients reduce their insurance protection or buy no cover at all.
National Chairman at the Federation of Small Businesses (FSB), Mike Cherry, notes that the changes are adding pressure at a time when additional costs of doing business are already rising.
“If insurance premiums continue to increase, small business take-up of insurance will begin to dip, and it will be those most at risk that will be affected. Unlike VAT, businesses cannot claim back the cost of Insurance Premium Tax," he warned. "We agree all parties should commit to a freeze on Insurance Premium Tax for the term of the next parliament.”
This latest uplift reflects a continuing trend in Europe, according to CEO of FiscalReps, Mike Stalley: "Generally across Europe default IPT rates are mirroring standard VAT rates, and as such if the UK follows suit we would anticipate further increases in the future, ultimately driving up insurance costs. Furthermore, this suggests that de minimis provision may become a more prominent consideration for insurers.”
Historical rate of Insurance Premium Tax:
· 1 April 1997 to 30 June 1999 – a standard rate of 4%
· 1 July 1999 to 3 January 2011 – a standard rate of 5%
· 4 January 2011 to 31 October 2015 – a standard rate of 6%
· 1 November 2015 to 30 September 2016 – a standard rate of 9.5%
· 1 October 2016 to 31 May 2017 – a standard rate of 10%
· 1 June 2017 – a standard rate is 12%