IPT (insurance premium tax) has doubled from 6% to 12% over the last few years, which has forced insurance premiums up in turn for customers and now accounts for £50 on an average policy. Though IPT only directly affects insurers, this is likely to have a knock-on effect to your business insurance policy.
What is insurance premium tax?
Insurance premium tax is the equivalent of VAT, just applicable to insurance instead. As of June 2017, the standard rate sits at 12%, with a higher rate of 20% applicable to travel insurance, mechanical/electrical appliance insurance and some car insurance. IPT must be added to your insurance quote automatically, so the entire amount of your given quote includes IPT.
How does insurance premium tax affect businesses?
As IPT is a tax which directly affects insurers and not businesses directly, IPT is often forgotten about or not understood. However, all businesses require a business insurance policy, so will be affected directly by increases to IPT due to the increases that are made to insurance premiums to compensate.
However, the most negative aspect of IPT is that it’s a regressive tax that hits the poorest the hardest, taking a larger percentage of income from those with less money to spend. This is why the ABI (Association of British Insurers) is calling on the government to lend “relief” for young drivers between the ages of 18-21, who are currently spending over 10% of their annual salary on car insurance compared to the 2% spent by other age groups. Unfortunately, this appears to have had a knock-on effect in the number of people choosing to risk driving uninsured, with an increase of 10% of accidents recorded by the Motor Insurers Bureau that involved uninsured drivers in August 2017.
Small businesses and sole traders could be equally negatively affected, and trade body BIBA has advised that individuals and businesses alike turn to an expert insurance broker in order to ensure that you are sufficiently covered for all potential outcomes, as well as to help you get the best price insurance policy available.