Government cashes in on IPT
Research by UHY Hacker Young (UHY) shows why Insurance Premium Tax (IPT) has become one of the Government's favoured income generators.
The Government’s take from Insurance Premium Tax (IPT) increased to £6bn in 2017/18, an increase of 22% over the £4.88bn collected the previous year, a far larger amount than had been predicted.
Written on 28th September 2018
The Treasury increased the rate of IPT from 10% to 12% in June 2017 having announced the change in the 2016 Autumn Budget. IPT is a tax on insurance policies that all insurance providers must charge. Government forecasts suggested that this increase would generate an extra £680m, however the actual increased tax raised was £808m to year end March 31 2018, 19% more than the original prediction. IPT generated £3.8bn to year end July 31 2016 so this tax on prudence has delivered an increase of 55% over two years.
As a regressive tax, IPT penalises those who pay more for their insurance. This includes groups such as young drivers and communities in flood risk areas. For example, the tax contribution for a £1,500 young driver’s policy has increased from £90 to £180 in the last 18 months alone. With young drivers more likely to drive without insurance, any further increases could have an impact on the number of uninsured drivers on the UK’s roads.
Businesses are also in the firing line for this indiscriminate taxation, which is not recoverable. Businesses are facing an ever increasing spectrum of risk with insurance policies covering cyber liability and crime becoming a necessity, whilst higher limits need to be purchased under liability policies following the Government's reduction of the Ogden Discount Rate and the spiraling increase in the cost of healthcare. This increase in the number and cost of policies purchased gets the treasury tills ringing as they collect more IPT.
It is difficult to argue with the UHY conclusion that the Government could choose to concentrate taxation on areas that they want to discourage, rather than taxing the cautious.