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Eversheds comment: Insurers will welcome phased approach to hiking insurance premium tax

  • United Kingdom

    08-07-2015

    Commenting on the insurance premium tax hike and VAT provisions announced in today's Budget, Giles Salmond, partner and tax expert at law firm Eversheds, says:

    "The Chancellor has announced an increase in the standard rate of IPT from 6% to 9.5%. Many insurers will welcome the phased approach for those using the special accounting scheme. In this case, there will be a 4 month concessionary period from 1 November 2015 to 29 February 2016 during which premiums received for policies entered into before 1 November will continue to be liable to the former rate of 6%. All premiums received after 1 March 2016 will be taxed at 9.5% regardless when the policy was entered into.

    "Additionally, from next year, VAT “use and enjoyment” provisions will apply so that UK repairs under UK insurance contracts will be subject to UK VAT. This will be coupled with a wider review of off-shore based avoidance in VAT exempt sectors, with a view to introducing additional use and enjoyment measures for services such as advertising. This is clearly directed at what HMRC regard as avoidance in situations similar to that in cases such as Ocean Finance where a business making VAT exempt loan broking services for UK lenders and borrowers was able to buy advertising services offshore VAT free. Last month HMRC lost its appeal in this case before the Upper Tribunal (Tax Chamber).”

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