ARAG News

Important Notice: Change to the rate of IPT

12 August 2016

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 presented in the 16th March 2016 Budget. George Osbourne announced 0.5% increase of IPT paid on premiums which are taxed at the standard rate. The rate therefore increases from 9.5% to 10.0% effective from 1st October 2016.
 
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
From the effective date of the rate change, i.e. 1st October 2016, HMRC rules provide for a transitional period which will end on 31st January 2017. 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 pre-1st of October 2016 policies are not booked at ARAG by 30th December 2016, then the Agents will be liable to 10.0% IPT.
This 30th December 2016 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 31st January 2017 deadline.
 
What this means in practice is
- all policies with a start/renewal date on or after 1st October 2016 will be liable to 10.0% IPT
- all policies with a start/renewal date before 1st October will be liable to 9.5% IPT provided the premium is received by ARAG by 30th December 2016
- all premiums received by ARAG on or after 31st December 2016 will be liable to 10.0% 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 October 2016 will be liable to IPT at 9.5% (so long as it is received by ARAG by 30th December 2016)
- any additional premiums or other policyholder charges (Mid Term Adjustments) arising on or after 1st October 2016 but before 31st December 2016 will be liable to IPT at 9.5% provided the underlying original policy (i.e. premium) was in force prior to 1st October 2016 and these  additional premiums are received by ARAG prior to 31st December 2016.
NB. This does not include extensions to cover.
- any additional premiums or other policyholder charges (Mid Term Adjustments) arising on or after 1st October 2016 where the original policy has a start/renewal date falling on or after 1st October 2016 will be liable to IPT at 10.0%
- 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.

--
Robert Moreton FCMA
CFO & Company Secretary
ARAG plc.


Registered in England No. 02585818. ARAG plc is authorised and regulated by the Financial Conduct Authority, Firm No. 452369

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