UK 2016 Budget: IPT Rate Increase And The De Minimis Concession

The UK's 2016 Budget includes a further increase to the rate of Insurance Premium Tax. Let's examine the details, and one important aspect of UK IPT legislation; the De Minimis concession.

In his 2016 budget announcement, Chancellor of the Exchequer George Osborne confirmed that the standard rate of UK Insurance Premium Tax (IPT) will rise by half a percentage point - from 9.5% to 10% - on 1 October 2016. However, transitional arrangements have been announced and exempt insurance contracts - and those that attract the higher rate - are unaffected.

Insurers operating the Special Accounting Scheme can apply the current standard rate (9.5%) to premiums received before 1 February 2017 relating to contracts entered into before 1 October 2016. The new standard rate will be applicable on all premiums received on or after 1 February 2017, regardless of when the contract was entered into.

For insurers operating the cash accounting scheme there are no such arrangements; all premiums that are taxable at the standard rate received on or after 1 October 2016 are to be taxed at 10%.

The De Minimis concession

The UK IPT regime is underpinned by some thorough legislation and guidance from the authorities. The HMRC Notice IPT 1 contains detailed explanations of what constitutes a taxable insurance premium, what classes of insurance are IPT exempt, policies that attract a higher rate, and various other items. The de minimis concession is one such item that can come into the equation for insurers underwriting a global insurance policy, and one that has come up regularly in the course of TMF Group's dealings with insurers and brokers.

If the total premium of an insurance contract is less that £500,000, and the UK taxable element of that premium is 10% or less, the contract meets the de minimis criteria, and you don't need to account for tax on that contract. It is worth noting that in co-insurance arrangements, the entire premium is subject to the de minimis test, rather than each insurer's proportion of the premium.

The presence of the de minimis concession can cause some accounting issues for insurers, particularly in cases where there are changes made to a contract after it has incepted. If, for example, a policy has met the above mentioned conditions at inception (and no IPT has been calculated accordingly), but additional premium has been collected after inception to reflect an increase in the sum assured which takes the overall premium above the...