On 21 July 2020 the UK published a summary of responses to the call for evidence on changes to the insurance premium tax (IPT).

The consultation asked for evidence and views on changes to the administration and collection of IPT; and on how to address emerging practices that lead to unfair tax outcomes. Responses were submitted by trade associations, businesses and some individuals.

Administration and Arrangement Fees

When the tax was first introduced insurance brokers usually worked on a commission basis and the commission was included in the gross premium cost. Since then there is some evidence of a change from this commission-based remuneration to charging administration and arrangement fees directly to customers.

Although there may be other reasons for this change there are business practices involving administration and arrangement fees in the insurance industry that may be leading to unfair tax outcomes. The IPT is charged on gross premiums but administration and arrangement fees are not subject to IPT or VAT. There may also be distortion in the market as a result of this practice.

The call for evidence requested information on the scale of the issue and the impact on competitiveness in the insurance industry. Some of the responses including those from trade associations recognised that there was a tendency towards fee-based remuneration, although some respondents considered this to be for commercial reasons. There was limited evidence of any effect on competitiveness. Some responses suggested that extending IPT to fees charged by connected parties, if carefully targeted, could be justified. Insurance brokers emphasised that any requirement to account for IPT on fees would add to their administrative burden.

IPT Returns

The responses indicated that changes to the IPT return could increase the compliance burden for insurers. To the extent that similar information is already required by the Prudential Regulation Authority changes to the information required on the IPT return would not create problems.

Unregistered Insurers

Generally respondents did not consider that there was any issue arising from insurers that are not registered for IPT, although some were aware of the existence of unregistered insurers. A trade body suggested that the insured person could be made liable for IPT where the insurer is outside the EEA.

The respondents were generally in favour of a public IPT register if the cost is borne by HMRC, although there were reservations about the information that might be available on the register. There was no evidence that a register would prevent unfair outcomes although it could increase transparency and help to limit the use of unregistered insurers. Some emphasised however that brokers only use unregistered insurers if they have no other option.

Next Steps

The UK government considers that improvements can be made to the IPT and will collect further evidence to clarify the responses received. The next consultation will be on specific proposals to improve IPT administration, including changes to simplify administration and changes to address unfair outcomes.