Introduced in 1994, the standard IPT rate was 2.5%. As of today, it has risen to a shocking 12%. This news has taken the Insurance Industry by storm. However for some, it may not be clear as to why this is so shocking, or even what IPT is and why it’s important to know.
So what is IPT? IPT stands for “Insurance Premium Tax”. It is a government-introduced tax on specific insurance policies (car and home insurance for example) that follows two fixed rates: standard and high. Although it’s been around from 1994 it’s recently made headlines due to impacts on motorists’ insurance. Due to the fact VAT doesn’t apply to insurance, the government became under the impression the insurance industry was not paying enough tax. As a result IPT rose to 4% in April 1997. It has been steadily rising ever since, with the government aiming to bring IPT levels in line with the VAT level (20%).
This affects all insurers who provide non-exempt insurance cover for UK specific risks and the brokers/agents who act for them. It will also affect purchasers of insurance, whose insurers choose to pay the IPT rate onto their customers.
The insurance industry is in outcry. Many insurers haveclaimed the continuous rise of IPT to be “unjust” and “unnecessary”. The ABI (Association of British Insurers) has recently launched a sequel to their #IPTsUnfair campaign. The video protests to the government that raising the IPT rateis in fact a wrong thing to do. They illustrate this by punishing people for doing the right thing, making IPT increases lookvery absurd.
James Dalton, Director of General Insurance Policy at ABI, said: “Taxing insurance premiums means punishing people who do the responsible thing. No-one would think it reasonable to fine people for clearing up after their pets, securing their homes or driving carefully. It is no more acceptable to penalise people who sensibly invest in insurance cover for themselves, their families and their belongings. Repeatedly putting up Insurance Premium Tax impacts hardest on the poorest and it’s time for the Chancellor to end this raid on the responsible and commit to no further increases this Parliament.”
Is IPT is unfair, or should the insurance industry ‘pay its way’. After all, in today’s world there is no escaping tax.
Let us have your views and opinions on the increases of IPT and how this affects you.