Insurance Premium Tax Explained


What is Insurance Premium Tax?

Insurance Premium Tax is a tax on general insurance premiums. There are two rates:
  • a standard rate of 6 per cent (increased from 5 per cent on the 4 January 2011)
  • a higher rate of 20 per cent (increased from 17.5 per cent on the 4 January 2011) for travel insurance and some insurance for vehicles and domestic/electrical appliances
Do I need to register for the tax?

You need to register and account for Insurance Premium Tax if you are:
  • receiving taxable insurance premiums as an insurer or intend to receive premiums as an insurer
  • someone who charges the insured an insurance related fee in respect of a higher rate contract (a taxable intermediary)
You are not required to register and account for Insurance Premium Tax if you have exempt insurance contracts. If you receive premiums that are partially exempt and partially liable, there may still be no requirement to register and account for Insurance Premium Tax.

When should I register?

All insurance related businesses need to notify HM Revenue & Customs (HMRC) within 30 days of forming the intention of receiving, as the insurer, taxable premiums. They must be registered from the date you receive (or someone receives on your behalf) your first taxable premium. 
If you are a taxable intermediary you need to register within 30 days of the date on which you decide to charge taxable intermediaries' fees. If you don’t notify HMRC at the proper time you may have to pay a penalty.

How do I account for the tax?

Once you have registered HMRC will send you a return usually every three months for you to complete and send back with payment for any tax due.

Accounting for Insurance Premium Tax:

Unlike VAT, there are no statutory provisions relating to time limits within which insurance premium tax (IP) should be accounted for. However, HMRC has detailed certain ghuidelines of how soon any tax should be accounted for. General rule is that the premium should be accounted for within:
  • 14 days of notification to the insurer of the receipt of the premium by a broker or other intermediary; or
  • 14 days of notification by a broker or other intermediary of the commencement of cover to which the premium relates; or
  • 14 days of receipt of the premium by the insurer; or
  • 30 days of the commencement of the cover to which the premium relates.

If you require further information in relation to this aspect or any issues covered by this aspect, please contact our office on 020 8768 5628.