I was recently speaking to friend of mine about the Government increase on IPT (Insurance Premium Tax) stating how I couldn’t believe that it was rising by a further 2%, to my surprise their reply was “What’s Insurance Premium Tax?” I explained it is a tax that is charged by the Government on EVERY insurance policy you take out and that it is something that insurance brokers/companies cannot waiver, change or reduce as it is not set out by them. Upon further investigation after talking to friends and family members it is surprising how many people are unware of Insurance Premium Tax.
IPT is set out by the Government and it standard on every insurance policy at the current rate of 10% (except on travel insurance policies where it is higher at 20%). So how does IPT work?
Firstly Insurance Companies set out the insurance premium for your policy e.g. a private car policy at £525 for the year. The Government then add a 10% tax on top of this that goes into their own pocket bringing the actual premium you pay to £577.50. This means the Government receive £52.50 in tax from the policy which the insurance company have no control over, as they only receive the £525 that they originally wanted to charge you.
The Chancellor of the Exchequer Philip Hammond revealed in the Autumn Statement that the tax is set to rise making it 12%. Now while this may seem like a small increase this will be third increase of IPT within the space of 18 months.
So if we take the same scenario as above the insurance company will set the premium for your policy the same as before at £525 however since the Government will now be collecting 12% tax the actual payable amount to your self would be £588 (£10.50 increase on your premium). Remember the insurance companies are not getting any of this extra money it is going direct to the Government.
This does not seem like a massive amount to one person but in 2014 there were 45.5million motorists registered in the UK so if everyone in the UK were paying £588 at 12% IPT for their car insurance that would mean the government makes £2.8billion just from car insurance tax alone. At 10% this would have been £2.3billion. This means increasing IPT by 2% increases the Governments income by almost £500,000,000.
In addition to this the Ogden Rate which is used by insurance companies to determine how much they are required to pay out for claims has changed from 2% to -0.75%. As a result of this Government change, claims pay-outs will now cost insurers significantly more. Unfortunately the only way for them to cover this loss is by increasing insurance premiums for their customers. So insurance companies and brokers are discussing with the Government, to re-look at the IPT increase, to reduce the cost which will mean customers won’t be hit as hard with further increases on their insurance.
The table below shows how Insurance Premium Tax has increase over the years:
As a result of the Tax Increase you may see a proportionate increase in the cost of your insurance premium at renewal. Connect Insurance will continue to fight on your behalf to provide the most competitive quotations possible. If you would like a quote, please click here or ring us today on 01782 280280
Sources: www.gov.uk: How many people hold licences in the UK