ARAG News

Brokers - Important Notice : Change to the rate of IPT

08 October 2015

 

Implications and ARAG's requirements


The Rate Change

You will be aware of the latest change in the standard rate of insurance premium tax (IPT) which was announced in the summer (8th July) 2015 Budget. George Osbourne announced an increase from 6% to 9.5%.
 
Effective date used to determine rate of IPT

ARAG submits accounts to its Underwriters on the basis of the effective date i.e. the tax point. This is determined by the date upon which cover provided by the insurance policy begins i.e. inception date (including renewal and mid-term adjustment date).
 
Transitional Period

The rate change will be effective from 1 November 2015 and the rules provide for a transitional period which will end on 29 February 2016. That transitional period was designed to accommodate arrangements in place which have inherent delays built in e.g. the submission of information and premiums following the effective date by bordereaux.
Whilst the transitional period allows a limited window to deliver details of polices, ARAG's Agents should note that if premiums due on pre-1st of November 2015 policies are not booked at ARAG by 31st of January 2016, then they will be liable to 9.5% IPT.
This 31st of January final delivery date is necessary because ARAG, in turn, has to forward covers by bordereaux to Underwriters in sufficient time to allow them to process the premiums to meet the 29 February deadline.
 
What this means in practice is :
- all policies with a start/renewal date on or after 1st November will be liable to 9.5% IPT
- all policies with a start/renewal date before 1st November will be liable to 6% IPT provided the premium is received by ARAG 31st January 2016
- all premiums received by ARAG on or after 1st February 2016 will be liable to 9.5% IPT irrespective of rate received from policyholder or the start/renewal date of the policy contract
- any additional premiums or other policyholder charges (i.e. Mid Term Adjustments) arising before 1st November 2015 will be liable to IPT at 6% (so long as it is received by ARAG prior to 1st February 2016)
- any additional premiums or other policyholder charges (Mid Term Adjustments) arising on or after 1st November 2015 but before 1st February 2016 will be liable to IPT at 6% provided the underlying original policy (i.e. premium) was in force prior to 1st Nov 2015 and these  additional premiums are received by ARAG prior to 1st February 2016.
NB. This does not include extension to covers.
- any additional premiums or other policyholder charges (Mid Term Adjustments) arising on or after 1st November 2015 where the original policy has a start/renewal date falling on or after 1st November 2015 will be liable to IPT at 9.5%
- any premium refunds will attract IPT credit according to the rate of tax appropriate to the initial or additional premiums
 
Anti-forestalling Provisions

HMRC has published a statement making clear its position on Anti-forestalling and ARAG is not expecting, for instance, to move renewal dates back to ‘avoid’ the change in prevailing IPT rate.

If you have any questions or concerns please contact your business relationship manager who will be happy to assist. If you prefer you can also refer any questions to Ben Parkinson by email at Ben.Parkinson@arag co.uk, or call him on his direct line: 0117 307 2278.
 
--
Robert Moreton FCMA
CFO & Company Secretary
ARAG plc.

News Archive