ARAG News

Brokers - Important Notice in BTE Policies : Change to the rate of IPT

08 May 2017

 

 

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 23rd November 2016 Autumn Budget Statement. Philip Hammond announced a 2.0% increase of IPT paid on premiums which are taxed at the standard rate. The rate therefore increases from 10.0 % to 12.0% effective from 1st June 2017.  

Effective date used to determine rate of IPT

ARAG submits accounts to its Underwriters based on 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 June 2017, HMRC rules provide for a transitional period which will end on 31st May 2018. 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 policies incepted pre-1st of June 2017 are not booked at ARAG by 28th April 2018, then the Agents will be liable to 12.0% IPT. This 28th April 2018 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 May 2018 deadline. 

What this means in practice is
- all policies with an inception/renewal date on or after 1st June 2017 will be liable to 12.0% IPT

- all policies with an inception/renewal date before 1st June 2017 will be liable to 10.0% IPT provided the premium is received by ARAG by 28th April 2018
- all premiums received by ARAG on or after 28th April 2018 will be liable to 12.0% IPT irrespective of rate received from policyholder or the inception/renewal date of the policy contract
- any additional premiums or other policyholder charges (i.e. Mid Term Adjustments) arising before 1st June 2017 will be liable to IPT at 10.0% (so long as it is received by ARAG by 28th April 2018)
- any additional premiums or other policyholder charges (i.e. Mid Term Adjustments) arising on or after 1st June 2017 but before 28th April 2018 will be liable to IPT at 10.0% provided the underlying original policy was in force prior to 1st June 2017 and these additional premiums are received by ARAG prior to 28th April 2018. NB. This does not include extensions to cover.
- any additional premiums or other policyholder charges (i.e. Mid Term Adjustments) arising on or after 1st June 2017 where the original policy has an inception/renewal date falling on or after 1st June 2017 will be liable to IPT at 12.0%
- 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.

If you prefer you can also refer any questions to Ben Parkinson by email at ben.parkinson@arag.co.uk or call at: 0117 307 2278.

--
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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