One of the largely overlooked details in the latest UK budget was the increase of Insurance Premium Tax (IPT) from 6% to 9.5%, effective for all policies renewed on or after November 1, 2015. This will impact almost all insurance policies including your business insurance. Insurance companies have already said they are unlikely to absorb this increase so you can expect your insurance costs to rise to cover at least part of the increase.
How you deal with this is entirely a business decision on your part. You could of course choose to absorb this increase in cost on existing customers and only increase the rate for new customers. While only a relatively small increase in cost, this will still impact your bottom line and could do for a considerable time for your long term customers.
If you are due for a price rise between now and November you could factor this into your pricing and raise the storage or insurance prices to cover the increase in tax. As long as you are not saying that you are collecting increased IPT before November then there is nothing to stop you increasing your prices before then. Pricing is entirely at your discretion and you can raise and lower prices as you see fit.
There is likely to be some increased media attention on this issue when the November implementation date approaches, so you may use this as a catalyst to increase the price of insurance on all customers as of November, when the new tax rate kicks in.
The change in tax rate also impacts how you report and pay IPT to your insurance provider. As the implementation date is not the end of the year, or even the end of a quarter, this impacts on when you report your IPT obligations to your insurance provider. If you report a whole year or a quarter to your insurance provider after October 31 this year, then you will need to clarify how much of the fee was levied prior to November 1 and has the 6% rate applied and how much is under the new rate. You should discuss this with your insurance provider, it may be easier if you reconcile and report your IPT obligations as of October 31 to ensure that the new rate is only applied to customers who pay their insurance after this time. Talk to your insurance provider about how they will be handling this issue.
This is over a 50% increase in the IPT tax and is expected to raise the government £1.46 billion when fully introduced in 2016/17. It should be expected that this will make HMRC even more vigilant in regulating this tax and ensuring businesses and insurance companies are declaring and paying the correct amount of IPT and so whichever way you offer insurance to your customers you should be vigilant in ensuring that you collect and pay the appropriate VAT and IPT.
This has further implications for self storage operators who offer self storage insurance to their customers and pay IPT to their brokers as part of this arrangement. As self storage customer insurance is essentially renewed on a month to month basis with the storage contract, the 9.5% IPT rate will apply to all self storage customers insurance as of November 1 this year, regardless of when they signed up for storage. The only possible exception to this would be if they have pre-paid their insurance beyond November 1, but there are conditions around this as well. So essentially the cost of customers’ goods insurance to you will go up by 3.5% and you will also have to pay 3.5% more in IPT on the value of the insurance premium you charge your customers.