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Only four months to go until IPT rate rise comes into forceDeloitte advises that insurers must be prepared for changes |
3 September 2010
With only four months until the UK’s standard rate of insurance premium tax (IPT) increases to 6%, Deloitte warns that insurers need to be preparing for the changes now.
David Fownes, indirect tax director at Deloitte, commented: “Insurers must plan very carefully for the upcoming increase in IPT. Given this is the first rate change for 11 years, there may be a lack of experience with dealing with the technicalities of the change and insurers will want to ensure they manage it correctly.
“There is a risk of reporting errors if key transition requirements are not addressed and resolved. In addition, all companies are now required to demonstrate they have taken reasonable care and have implemented appropriate accounting arrangements. Under the recently introduced penalty regime for IPT, HMRC can now penalise careless errors at up to 30% of the amount of tax due.”
Deloitte has identified four key issues for insurers to consider in the lead up to the rate increase.
- Aligning the interaction of the special accounting scheme with the rate rise and ascertaining the correct tax points, and applicable rate, for all business written and premiums received;
- Managing the broker network and/or other distribution methods to ensure consistency of approach across all premium income streams;
- Monitoring any developments regarding transitional arrangements and then applying them if and when they are announced; and
- Ensuring that underwriting systems and the audit trail to the IPT return are prepared to cope with the rate change.
David Fownes continued: “HMRC are yet to announce any transitional arrangements that would make it easier for the industry to cope with the change, and may not do so even though there were such arrangements on previous rate changes. This will particularly affect those insurers who use the special accounting scheme for IPT accounting and who have policies that incept well before the premiums are booked. Insurers cannot rely on HMRC or the Treasury bringing in transitional arrangements and they should therefore be considering and discussing with brokers how they intend to deal with the rate change issues.”
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