Not everyone is aware that when you pay for an insurance policy, the cost of your insurance is subject to insurance premium tax (IPT).
In our guide below, we answer the most frequently asked questions when it comes to insurance and premium tax. Here's all you need to know.
No, you do not pay VAT on insurance, you instead pay an insurance premium tax (IPT). Unlike VAT, IPT cannot be recovered and whilst insurance providers are responsible for paying IPT to HMRC, they usually pass on the cost to consumers.
Insurance premium tax is very similar to VAT; the only difference being that it is a tax that's solely applied to insurance transactions and the standard amount payable (currently 12%) is usually at a different rate to VAT (currently 20%).
There is no ‘insurance VAT rate’ as VAT is not payable on insurance premiums; insurance premium tax is applied and payable instead.
It is your insurance provider’s responsibility to pay IPT insurance tax to HMRC, but this cost is usually passed on to the policyholder.
Insurance premium tax (IPT) is a percentage of the cost of the insurance - the standard and current IPT rate is 12%. This cost is usually included in any quote for insurance and many consumers pay this tax when paying their insurance premiums without even being aware of its existence.
Most insurance policies are subject to insurance premium tax apart from:
The standard rate of insurance premium tax in the UK is currently 12%. However, for certain types of insurance like travel insurance, electrical appliance insurance and certain vehicle insurance policies (sometimes on brand new cars from a dealership), a higher IPT rate of 20% applies.
There are certain criteria exempt from IPT, including:
The rate of IPT varies and is subject to change at any time. For up-to-date IPT rates, visit www.gov.uk.
No, there is no VAT payable on car insurance; car insurance is VAT exempt. However, car insurance is subject to insurance premium tax (IPT) at a standard rate of 12%. A higher rate of 20% (the same rate as VAT) can be charged on insurance if it’s arranged by a seller (i.e. a dealership).
There is no VAT payable on business insurance policy premiums, but there can be VAT payable on business insurance claims.
No VAT is payable on business insurance when it’s arranged directly with an insurance provider. Instead, insurance premium tax is charged on all insurance policies and payable by the insurance provider to HMRC. However, this IPT cost is normally passed on and included in the insurance quote and premiums payable by consumers.
If you make a claim on your business insurance policy and are a VAT-registered business, any compensation paid by your insurer may exclude VAT. This is because insurers cannot recover VAT they may have paid to replace goods or for repair works carried out on your behalf as a result of your insurance claim. As a VAT-registered business, under normal circumstances, you should be able to claim back VAT through your business.
Yes, but only as a premium to your insurer; your insurance provider is responsible for paying insurance premium tax to HMRC and it’s at the insurance provider’s discretion as to whether or not they pass that cost onto a customer, which they usually do.
No, you cannot recover insurance premium tax (IPT) paid on insurance premiums. IPT is different to VAT - for more information about the difference between IPT and VAT, visit www.gov.uk.