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PBRN15 - Insurance Premium Tax Premium Splitting

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					          22009 Pre-Budget Report


                                                                      PBRN15

                                                             9 December 2009


       INSURANCE PREMIUM TAX: PREMIUM SPLITTING


Who is likely to be affected?

1. Businesses that charge private individuals fees for services connected to
   contracts of insurance.

General description of the measure

2. Insurance Premium Tax (IPT) is paid by an insurer on the gross premium
   charged under a taxable insurance contract, which includes any
   commissions or fees unless they are charged to the insured under a
   separate contract. Legislation will be introduced in Finance Bill 2010 to
   close an avoidance scheme involving an ‘administration fee’ charged
   under a separate contract. The legislation brings certain fees charged
   under a separate contract in connection with personal lines insurance into
   the scope of IPT.

Operative date

3. The legislation will have effect for payments made on or after 9 December
   2009.

Current law and proposed revisions

4. The provisions relating to IPT are contained within Finance Act (FA) 1994.
   Section 72 of FA 1994 will be changed under primary legislation to specify
   that for insurance contracts with private individuals, the provision defining
   a ‘separate contract’ excludes contracts that are entered into at or about
   the same time as the insurance contract and:
   • are contracts for services that would usually form part of the insurance
       contract; or
   • where the insured is required to enter into both contracts together, or
       would be unlikely not to.

5. Separate charges for amendments to the insurance contract or for paying
   for insurance by credit/debit card or by instalments are specifically
   excluded from this measure.




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6. The measure applies only to charges made in connection with insurance
   contracts with private individuals because this is where the avoidance has
   been found to date. Charges made for services provided in connection
   with insurance contracts with businesses and other organisations,
   therefore, are not covered.

7. HM Revenue & Customs will keep the situation under review and
   consideration will be given to an extension of the scope of the provision in
   the future should there be any evidence of the avoidance moving into
   other areas.

Further advice

6. If you have any questions about this change, please contact David
   Coppins on 020 7147 3228 (email: david.coppins@hmrc.gsi.gov.uk).
   Information about Pre-Budget Report measures is available on the HM
   Revenue & Customs website at www.hmrc.gov.uk




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