GIM4260 - Taxation of general insurance: insurance premium tax (IPT)

Insurance Premium Tax (IPT) was introduced in FA 1994 with effect from 1 October 1994. It is due on receipt of a premium by an insurer in respect of insurance risks which are located in the UK. Certain types of risk are exempt, including life assurance business, reinsurance and ships and aircraft. IPT due is likely to be recharged to the policyholder. Like VAT it is borne by the policyholder but collected by the insurer. Insurers may account to Customs on a “cash receipt” basis or a “written premium” basis.

The accounting treatment will usually be to exclude the IPT element of the premium from the general business technical account, and to deal with it through the balance sheet (along with any foreign premium taxes collected in respect of non-UK risks). This accountancy treatment is acceptable for tax purposes.

If however an insurer chooses to include IPT in the premiums credited to the technical account, and to treat the tax payable to Customs as a deduction, this is permissible for tax purposes provided the method used is reasonable and adopted consistently.

Non-UK established insurers are required to appoint fiscal representatives in the UK to act on their behalf in complying with their obligations. The Revenue has told the representative bodies that a person who is appointed to act as a fiscal representative will not be regarded as a “branch or agent” of the non-resident if his duties are confined to those imposed on such representatives by the IPT legislation. But if the representative also performs other functions it will be a question of fact to be decided on the merits of each case whether the non-resident is trading in the UK through the representative (see GIM10060).

For further details see the HMRC Guides and Business Briefs on IPT.