Pay-Per-Mile Car Insurance – How Do You Tax That?

July 15, 2020

Car insurance premiums are always making headlines. With the cost of insurance for younger drivers continuing to rise, a new generation of drivers are questioning the need to own a car.

Many drivers who live in the city or commute often only use their cars on weekends, but the cost to insure a car that is sitting idle most of the time can seem an unnecessary expense for many.

Insurers have seen a gap in the market and are now offering pay-per-mile insurance – providing even more affordable and flexible insurance than previously offered, targeted at infrequent drivers who still need a car.

But how do you calculate and accurately tax a constantly evolving premium that varies customer-to-customer?

IPT for pay-per-mile policies

Pay-per-mile is essentially another form of telematics insurance, using technology to monitor how many miles a driver travels in a month and then building a policy that matches that. 

The idea is that the fewer miles a driver travels, the less likely they are to be involved in an accident and therefore need to claim. The policy’s cost is split between a fixed cost for when the car is stationary plus the cost per miles travelled. The challenge for insurers is tracking and updating the premium tax owed on the cost per miles travelled.

Depending on when IPT is filed and how frequently the pay-per-mile policy is updated, the two could be out of sync.

Although insurers are likely to use estimates, there is still potential for over or under paying premium tax on pay-per-mile policies because there’s no definitive number across a customer base. If this were to occur on all pay-per-mile policies it could significantly add to the costs borne by the insurer, especially as car insurance IPT rates continue to be one of the highest.

The complications can further increase with an insurer operating in multiple jurisdictions as IPT on vehicles is fragmented and varies from country to country. There is also a higher risk of human error with more changeable policies, so it’s important that taxes are managed and accurately filed to avoid mistakes.

This new breed of insurance has a wealth of benefits for policyholders and insurers alike, but it’s important for insurers to consider how to correctly manage and process this new style of policy.  This is particularly relevant when it comes to accurately calculating the IPT due to ensure premiums are competitive and to protect profit margins, but also from a tax compliance perspective.

Take Action

Keep up to date with ever changing rules by subscribing to our blogs and following us on LinkedIn and Twitter. We also host regular webinars with our in-house specialists who are on hand to help.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.



Sovos is a leading global provider of software that safeguards businesses from the burden and risk of modern transactional taxes. As VAT and sales and use tax go digital, businesses face increased risks, costs and complexity. The Sovos Intelligent Compliance Cloud is the first complete solution for modern tax, giving businesses a global solution for tax determination, e-invoicing compliance and tax reporting. Sovos supports more than 7,000 customers, including half of the Fortune 500, and integrates with a wide variety of business applications. The company has offices throughout North America, Latin America and Europe. Sovos is owned by London-based Hg. For more information visit and follow us on LinkedIn and Twitter.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

Tax Compliance
August 7, 2020
GAO Urges IRS to Overhaul 1099 Reporting for the Gig

A couple of weeks ago, the Government Accountability Office (GAO) released a report to the Senate Finance Committee describing the issues the IRS faces in enforcing income tax compliance for gig economy workers. The report highlighted long-standing issues the government has been grappling with in receiving tax information necessary to enforce compliance along with specific […]

EMEA VAT & Fiscal Reporting
August 4, 2020
New VAT Rules for Online Marketplaces and Imports of Goods into the UK

The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period. Cross-Border Sales under £135 New rules will apply when a business sells goods for £135 or less to a UK customer and the goods […]

EMEA VAT & Fiscal Reporting
August 3, 2020
New EU Tax Package: VAT Priorities

On 15 July 2020, the European Commission (EC) adopted a new Tax Package, intended to increase tax compliance while reducing administrative burden on businesses. The Tax Package contains a number of proposals related to VAT, of which three in particular stand out: A single EU VAT registration for taxpayers; Modernized VAT reporting obligations; and Facilitated […]

August 3, 2020
Should Insurers Receive an IPT Holiday From Their Governments?

It’s been a tough year for businesses. Whilst many have accepted that 2020 is likely to be a year to forget, unfortunately tax still needs filing and paying. Tax authorities have been understanding – nobody could have foreseen this – and there has been a concerted effort to provide SMEs with tax relief and postponements […]

Asia Pacific E-Invoicing Compliance EMEA India
July 31, 2020
India: Last-Minute Changes to the Proposed E-Invoicing System

The October deadline is fast approaching for the Indian CTC invoicing mandate, but it remains a moving target. In a swift move that was published just two months prior to go-live, authorities have now changed the scope of who is affected by the reform, as well as updated the JSON format. Why the change? The […]