This blog was last updated on January 11, 2024

HMRC, the UK’s tax authority, is asking for responses to its Insurance Premium Tax: Administration and Unfair Outcomes Consultation, by 5 February 2021.

The first consultation and call for evidence for Insurance Premium Tax (IPT) was back in 2019 and questions focused on the modernisation of IPT and efficiency improvements for businesses and HMRC. It also considered unfair practices and tax outcomes and how to address them.

The consultation outcomes were published in July 2020 but there were only 27 responses received from the insurance industry. This meant that there was no clear evidence that specific changes to IPT needed to be made and therefore a further consultation was issued to collect more specific responses. The hope is that the second consultation will receive a higher number of responses and provide a more extensive view of the industry’s opinion on proposed approaches.

The aim of the consultation

The second consultation was issued in November 2020 and responses are due by 5 February 2021. As with the first consultation, the aim is to find measures that make the IPT administration process more efficient for both the insurance industry and HMRC and to tackle IPT avoidance and evasion.

This second consultation focuses more on administration and unfair outcomes with three key chapters: unregistered insurers, avoidance structures and administration of IPT. The consultation document puts forth a number of potential approaches for each topic, with specific questions for each option for the industry to provide their feedback and insights.

Some specific IPT challenges up for discussion include tax avoidance through ‘value shifting’, which is when a broker charges a fee to the insured via a separate contract and in turn the insurer will lower the premium. This results in lower IPT being paid.

Frequency of IPT declarations

There is also discussion around changing the frequency of the IPT return declaration from quarterly to annually, with larger taxpayers paying quarterly amounts on account. Germany already has a similar scheme where smaller taxpayers can file returns at a lower frequency (i.e. annually instead of monthly) if they are below a certain tax threshold. This provides the benefit of reduced admin for both the taxpayer and tax authority.

HMRC hopes this second consultation will reveal insight into how the industry would like to tackle some of these issues and help shape the framework of future legislation. We will provide an update once results are published later this year.