The Chancellor announced in the March Budget that Insurance Premium Tax would rise by 0.5% to 10.0% from 1 October 2016. This uplift will apply to all general insurance products and to all forms of transaction including new business, renewal and mid-term adjustment which are effective on or after the 1 October 2016.
Implications of the changes for ERS Brokers and Customers
We have commenced the work necessary to update our pricing models, document production and accounting systems to ensure that the increased rate of IPT is applied to all products and all transaction types in time for 1 October. These changes will be executed through all Software Houses and all products and schemes underwritten by ERS.
There are however some additional considerations that we will need to work with to ensure that the appropriate rate of IPT applied and collected during the transition from the current to increased rate. We will also need to work with you to ensure that the changes in IPT are correctly provided for in respect of business written under various forms of delegated authority. These provisions are outlined in the following paragraphs.
Application of IPT on Transactions
ERS uses the "special accounting" scheme (SAS) to account for IPT to HMRC with the agreed tax point being the date ERS writes the premium in its books, this is equivalent to the processing date on an ERS policy administration system.
From 1 February 2017 all taxable premiums with the exception of return premiums processed on an ERS system will be subject to the new standard IPT rate of 10.0%, regardless of the policy inception date.
Important – the concessionary period runs from 1 October 2016 to 31 January 2017. Late notification of transactions may result in ERS not being able to process these premiums before the concessionary period deadline and so become liable for the new IPT rate of 10% and paying the potential IPT shortfall. We will be looking to work closely with our brokers during the concessionary period to ensure that premiums are notified to ERS in a timely manner to minimise any potential additional IPT liability.
We have summarised below how the change in the rate of IPT will be implemented by ERS considering the different forms of transaction and different transaction effective dates:
New business and Renewals
- Policy with an inception/renewal date before 1 October 2016 where the premium is processed on an ERS system up to and including 31 January 2017 are subject to 9.5% IPT, the old rate.
- Policy with an inception/renewal date before 1 October 2016 where the premium is processed on an ERS system on or after 1 February 2017 are subject to 10.0% IPT, the new rate.
- Policy with an inception/renewal date on or after 1 October 2016 where the premium is processed on an ERS system on or after 1 October 2016 are subject to 10.0% IPT, the new rate.
Additional premium
The rate of IPT paid is based on the effective date of the MTA and the processing date on an ERS system.
- Policy with an MTA effective date before 1 October 2016, an additional premium processed on an ERS system up to and including 31 January 2017 will be subject to 9.5% IPT, the old rate.
- Policy with an MTA effective date on or after 1 October 2016, an additional premium processed on an ERS system on or after 1 October 2016 will be subject to 10.0% IPT, the new rate.
- All additional premiums processed on an ERS system on or after 1 February 2017 will be subject to 10% IPT, the new rate irrespective of the MTA date.
Return premium
- Return premiums, refunds or cancellations will be subject to the IPT rate charged on the original premium that is being adjusted.
Brokers Using Any Form of Delegated Authority With ERS
A number of brokers trade with us under various forms of delegated authority. We will be working with you to ensure that the change in IPT is fully and accurately provided for under these agreements.
The approach in respect of the main forms of delegated arrangement are as follows:
- ROLLOVER DEALS:
Where we have agreed a rollover deal which involves the migration of business at pre agreed price levels or percentage rate movements on an incumbent insurers premiums, these agreements must be managed in such a way to uplift the Gross premium to reflect the increased Insurance Premium Tax rate. This will ensure that the premium net of IPT is unaffected.
- RATE MATCH DEALS
As with rollover deals, all rate match arrangements are on the basis of matching premiums prior to the application of IPT. Therefore all such arrangements must be updated to ensure the correct application of the increased IPT rate and no erosion of the net premium payable to ourselves.
- RENEWAL RATE CAPPING
Where we have agreed facilities whereby renewal prices are set by one of our brokers using a fixed percentage rate increase on the expiring premium, these caps need to be adjusted to ensure that the increase in IPT is loaded into the renewal premium therefore not eroding the premium payable to ourselves.
- BROKER OWNED RATING MODELS
For brokers that we have approved the use of specific rating models which are owned and operated by those brokers, changes need to be made to the models to ensure that the increase in IPT is fully priced into the Gross premium.
- EXCEL RATE CALCUALTORS
Where we have provided brokers with Excel based rating calculators for our specialist products, we will be updating all of these calculators to provide for the increased rate of IPT. These will be distributed in time for the change in tax rate. All previous versions of rate calculators should be withdrawn and not used for risks binding on or after the 1st November 2015.
If you have any questions or need any assistance in ensuring that the above actions are taken, please feel free to contact your Business Development Executive or relevant underwriting team.
