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Insurance Premium Tax changes

At a glance

  • The Government has announced that the standard rate of Insurance Premium Tax (IPT) will increase from 10% to 12% with effect from 1 June 2017
  • The new rate will not apply to all insurance premiums; it will only apply to premiums received under general insurance policies
  • We explain how IPT will be charged for new business, renewals and mid-term adjustments

As announced in the Autumn Statement, the Government will introduce legislation in the Finance Bill 2017 to increase the standard rate of Insurance Premium Tax (IPT) from 10% to 12% in the United Kingdom. The changes will take effect from 1 June 2017 for premiums which relate to risks where the period of cover begins on or after that date.

New business and renewals

The new rate will only apply to premiums received under general insurance policies such as motor, property, liability or medical insurance which are currently subject to IPT at the standard rate of 10%. Some insurance, such as insurance sold with car and domestic appliances and all travel insurance is subject to the higher rate of 20% and will not be affected.

All new business and renewals with a term start date on or after the 1 June 2017 will be charged at 12%.

New business and renewals with a term start date prior to 1 June will be charged at 10% provided the premium is booked in insurers systems prior to 1 June 2018 (The “backstop date”).

Backstop Date

There is a backstop date, which means that all premiums processed on Zurich’s underwriting systems on or after 1 June 2018 will be taxed at the new rate of 12%, regardless of when the cover for the risks under the insurance policy began.

From 1 June 2018, the new 12% rate applies to all premiums (with the exception of some return premiums), regardless of whether they relate to new or existing risks.

Broker bordereaux

In principle, the IPT treatment of insurance policies sold by you on behalf of Zurich should reflect precisely the rules set out above please. However, given that you are unlikely to customise your systems, it’s feasible that you will not be able to report Zurich’s IPT liability accurately.

Given that variations in supporting systems exist, you should take steps to minimise the delay in bringing policies written on our behalf by you with cover start dates prior to 1 June 2017 to account by 30 April 2018.

The total of premium written or refunded at the old and the new rates of IPT should be separately identifiable on premium bordereaux and in management information please.

If you have any further questions about your policy please read our frequently asked questions below or contact your local Account Executive.

Frequently Asked Questions

What IPT will I be charged for new business and renewals?

All new business and renewals with a term start date on or after 1 June 2017 will be charged at 12%.

New business and renewals with a term start prior to 1 June 2017 will be charged at 10% provided the premium is booked in insurers systems by 31 May 2018.

What happens if I made a mid-term adjustment (MTA) on policies?

  • If the MTA result in a reduction in premium and a refund is required, IPT will be credited at the rate applied to the premium being adjusted
  • If the MTA results in an additional premium being charged for a policy with term start date before 1 June 2017, where the additional cover starts before the backstop date and which is processed up to and including 31 May 2018, it will be subject to the 10% IPT
  • If the MTA results in an additional premium being charged for a policy with term start date on or after 1 June 2017, it will be subject to the 12% IPT
  • Any additional premiums processed after 31 May 2018 irrespective of policy or cover effective date will be subject to the 12% IPT

What is the Backstop date and how does it apply?

There is a backstop date that allows insurers to write premiums for policies that have incepted or renewed prior to 1 June 2017 at the old IPT rate, provided it is processed on Zurich systems by 31 May 2018.

Policies debited on 1 June 2018 or after this date will be liable for IPT at 12% with the exception of some return premiums. Return premiums always attract the rate of IPT applicable to the original premium that the return premium reduces.

What IPT will I be charged on policies booked in advance?

If a policy with a term start date of 1 June 2017 or after is booked in underwriting systems prior to 1 June 2017, the IPT will be charged at 12% because cover commences on or after the rate change date i.e 1 June 2017.
If a policy with a term start date prior to 1 June 2017 is booked in advance the IPT will be charged at 10% so long as the premium is booked in Zurich’s underwriting system on or before 31 May 2018.

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