With the substantial sums of money spent during the Coronavirus crisis on the furlough scheme and supporting both businesses and individuals, there will come a time when the government need to decide how and when to start to pay back the money borrowed. It is likely that there will therefore be a review of current tax rates at some point as this is a key way the government raises money.
Could we see an insurance premium tax rise included in any tax reviews in 2021?
What is Insurance Premium Tax?
Insurance premium tax, also referred to as IPT, is a tax which is paid on the majority of insurance premiums. It is a tax which was introduced by the government in the 1990’s.
VAT is not charged on insurance policies – IPT is charged instead.
Insurance premium tax is not charged by an insurer. It is a tax. Insurers, where applicable will apply IPT to insurance premiums, collect the money and then pay it to the government.
How much is insurance premium tax currently?
There are currently two rates of insurance premium tax
- A standard rate of 12%. This is applicable to insurance policies such as home insurance, car insurance and business insurance
- A higher rate of 20% – applicable to travel insurance, mechanical or electrical appliances insurance and some vehicle insurance
Will insurance premium tax rise in 2021?
The standard rate of insurance premium tax has been frozen at 12% since June 2017. The higher rate has been at 20% since 2015.
Could we reasonably see the rate of insurance premium tax rise in 2021? Whilst we can’t predict the future, it is entirely possible that this is something that we may see happen.
There has been much talk of the need to rebalance the country’s finances after the significant cost of the support provided during the Coronavirus crisis by the government. And increasing taxes is one way the government can raise money.
If we think back to 1994 when IPT was first introduced at a rate of just 2.5%, and to 2015 when it was 6% compared to today’s rate of 12% it’s not hard to see why there are concerns of further rises.
Insurance premium tax has previously been referred to as a ‘stealth tax’ by the Association of British Insurers (ABI) given the significant level of income it generates despite those buying insurance doing the right thing by protecting their homes, cars and businesses. However, as far as we are aware of at Anthony Jones, surprisingly there has been little evidence of business and sectors of the economy themselves objecting to insurance premium tax. As a result, the Government could see a further rise in IPT rates as a soft target given the lack of protest as a whole. We would encourage businesses to lobby their trade bodies with regards to the tax .
With the next budget set to take place on the 3rd March we will soon see if increasing insurance premium tax is one of the areas which the chancellor identifies as a way to help bolster public finances.
At Anthony Jones we understand there is constant pressure on budgets when it comes to the costs of insurance, whether you are an individual or business owner. That is why we work hard to understand our customers’ needs so that we are in the best position to achieve insurance premiums which represent value for money to you or your business. Get in touch with us today to discuss your insurance requirements.