On 18 June the High Court released its judgment in the Homeserve Membership Ltd (Homeserve) Insurance Premium Tax (IPT) appeal (2009 EWHC 1311(Ch)). Homeserve arranges domestic plumbing and electrical breakdown insurance for householders. In 2004 Homeserve restructured its arrangements so that it charged part of what would ordinarily be considered the insurance premium as an 'arrangement and administration fee' under a separate contract with the insured.
The High Court found in favour of Homeserve, that is that the contract between Homeserve and the insured person fell outside the scope of IPT, being a separate contract to the taxable insurance contract.
HMRC has decided not to appeal this judgment. Claims from businesses that have been accounting for IPT on fees charged under arrangements such as those adopted by Homeserve (that is, charging fees under separate contracts with the insured parties and notifying the insured in writing that the fee is an amount so charged) will be paid subject to the normal repayment, capping and unjust enrichment rules.
HMRC's view, however, is that where fees are artificially carved out of what would ordinarily be taxable insurance premium, IPT is properly due. Action will be taken to close the loophole exposed by the outcome of the Homeserve litigation.
HMRC will be consulting informally with the ABI and other insurance industry representatives to ensure the proposed changes to IPT legislation are properly targeted.
Please contact the National Advice Service on Tel 0845 010 9000 or your nominated HM Revenue & Customs' contact should you have one.
Issued 17 August 2009
