Insurance Premium Tax
IPT is unusual as HMRC only collect it from Insurance Companies. The reason for this is the tax is a percentage (currently 12%) of an insurance premium set by an insurer so the tax is best collected alongside the premium.
The deregulated sale of insurance by Removal and Storage contractors created an unusual situation for Insurance Premium Tax. To be clear, this advice relates to companies that raise a separate charge or fee for insurance as opposed to extending liability under contract (Standard Liability). Insurers may be the only point of collection but they have no control over the fee raised by a remover (called a premium by some removers) to extend the benefit of his insurance cover to the customer. This charge or fee is subject to Insurance Premium Tax and not Value Added Tax because it is associated with an insurance product.
Charging the Tax
Any charge or fee for the provision of insurance raised by a remover to an individual attracts IPT whether the insurance relates to UK or European removal or storage work or deep sea shipments where either origin or destination is in the UK. IPT does not apply in the Channel Islands or Isle of Man. Further, IPT does not apply to the insurance of deep sea shipping of commercial imports or exports.
There is no need to show the IPT as a separate item to the insurance charge but it can sometimes make record keeping easier. We strongly recommend that documentation indicates that IPT applies.
Collecting the Tax
Insurers can only verify the extent of tax payable on the charge raised by removers by requesting either the total charge raised in a given period from which IPT will need to be separated or if IPT is always charged separately just the IPT element from their insured. Declarations made will then be processed on the accounting basis agreed for the same, normally via the Insurance Broker placing the cover.
Bear in mind that not all insurers are consistent in the vigour with which they chase the submission of the IPT declarations by their deregulated insureds.
Auditing the Tax Payable
Technically HMRC have a right of audit through the entire payment process. In reality they are most likely to uncover any shortfall when completing a tax inspection of the deregulated removal company. If an IPT shortfall is found HMRC would then need to take it up with the insurer providing the policy as the insurer is of course the point of collection, not their insured.
Naturally, when presented with such a demand the insurer will go to their insured for payment of the same which emphasises the need to provide accurate declarations to insurers. If no request from the insurer or Insurance Broker for a declaration of the IPT you have collected during the currency of a policy has been received soon after expiry we recommend that you make the declaration to them to demonstrate a desire to be tax compliant.