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 was built to solve the complexities of the digital transformation of tax, with complete, connected offerings for tax determination, continuous transaction controls, tax reporting and more. Sovos customers include half the Fortune 500, as well as businesses of every size operating in more than 70 countries. The company’s SaaS products and proprietary Sovos S1 Platform integrate with a wide variety of business applications and government compliance processes. Sovos has employees throughout the Americas and Europe, and is owned by Hg and TA Associates.
Share This Post

North America ShipCompliant
May 25, 2023
Out-of-State Breweries Gain Self Distribution, DtC Rights in Oregon

Under a settlement agreement, breweries located outside of Oregon now have more options for selling into the Beaver State, including direct-to-consumer (DtC) shipping and self-distribution to retailers. The settlement arose out of a lawsuit filed by a group of Washington breweries last year challenging Oregon laws that limited beer self-distribution to in-state breweries and DtC […]

EMEA VAT & Fiscal Reporting
May 24, 2023
VAT and Art: What you need to know

Significant inflation increases have impacted most of the world’s economies, with the UK still above 10% in 2023. This increase means a reduction in the purchasing power of consumers. Together with increases in the cost of raw materials, this has created uncertainty regarding growth of entire industrial departments and reduced profit margins for companies. The […]

North America ShipCompliant
May 23, 2023
Top 5 Myths Surrounding Retailer Direct-to-Consumer Wine Shipping

By Tom Wark, Executive Director, National Association of Wine Retailers Politics breed myths. This has always been the case as politics is, at its most fundamental, a form of storytelling. So it should be no surprise that myths have arisen as various elements of the wine industry have fought against consumers and specialty wine retailer seeking […]

May 23, 2023
IPT: Location of Risk and Territoriality

Much of the discussion on the Location of Risk triggering a country’s entitlement to levy insurance premium tax (IPT) and parafiscal charges focuses on the rules for different types of insurance. European Union (EU) Directive 2009/138/EC (Solvency II) set out these rules. However, a related topic of growing importance in this area concerns territoriality, i.e. […]

Asia Pacific E-Invoicing Compliance
May 23, 2023
Japan: New e-Invoice Retention Requirements

Japan’s new e-invoice retention requirements are part of the country’s latest Electronic Record Retention Law (ERRL) reform. Along with measures such as the Qualified Invoice System (QIS) and the possibility to issue and send invoices electronically via PEPPOL, Japan is implementing different indirect tax control measures, seeking to reduce tax evasion and promote digital transformation. […]