The Government announced an increase in Insurance Premium Tax in its 2015 Summer Budget. From 1st November 2015, the standard rate of Insurance Premium Tax (IPT) will increase from 6% to 9.5%.
This means that while ATE Insurance Premiums payable on or before the 31st October 2015 will attract IPT at the current rate of 6%, but premiums payable on or after 1st November 2015 will attract IPT at the new rate of 9.5%. This is regardless of the issue date of the policy. Furthermore, premiums on policies issued from 1st November 2015 onwards will all attract IPT at the new rate of 9.5%.
The Impact on the Price of Live and Future Policies
With regard to deferred premiums (Policies where the Premium is only due upon a successful outcome) it is not the date of issuance of the policy, but the date which the premium becomes due which will determine the rate of IPT. So a Policy which was issued in 2013 but did not result in a successful outcome, trigger payment of the premium until, December 2015 would attract an IPT rate of 9.5%. So, despite the fact a policy may have been issued when the IPT rate was 6%; 9.5% will be due upon settlement or award.
It is therefore important that fee-earners ensure that when their clients recover premiums from the Opponent on pre Jackson polices, the correct amount is claimed. Furthermore, all Clients with live, deferred ATE policies should be advised of the increase.
It may also be helpful to advise Clients currently considering ATE of the potential savings of paying some or all of the insurance premium on upfront basis ahead of increase on 1 November 2015. As Premiums which are paid upfront prior to the increase will only attract 6% IPT regardless of the date an outcome is reached.