UK: Government consults industry on insurance premium tax avoidance.

Added on 06/06/2019

As published on, Wednesday 5th June, 2019.


The UK Government is consulting with re/insurers in a push to address potential issues regarding the avoidance of insurance premium tax (IPT), as well as the artificial manipulation of fees.

HM Revenues & Customs (HMRC) explained that IPT is under review due to some significant changes in the way the insurance market operates, which have resulted in “unintended tax outcomes.”

When the tax was first introduced in 1994, the majority of insurance was bought through an insurance broker or direct with insurers, but now there is a shift from commission-based to fee-based broker remuneration, as well as a shift to online sales via third party sites.

“We have been made aware of business practices involving administration and arrangement fees which may be leading to unfair tax outcomes in the insurance industry,” HMRC stated in a call for evidence.

“This involves the artificial manipulation of insurance and broker structures to create different tax outcomes,” it explained. “IPT is chargeable on the gross premiums, whereas fees are not subject to IPT or VAT.”

The government is now considering a number of options to address any instances of avoidance or evasion identified by the consultation.

These may include bringing some administration fees into the scope of IPT where corporate structures are used to artificially manipulate the level of commission and fees received.

“If there has been a shift in the industry from commission to fees, whether for transparency or otherwise, bringing fees within the scope of IPT would ensure the tax is applied fairly across the insurance sector,” the consultation stated.

In this case, HMRC would employ an anti-avoidance measure to target those using contrived pricing structures to gain a competitive tax advantage.

The department may also require captive insurers to disclose who their parent company is, so that the government can “better understand both the business of the insured party and the types of risks being underwritten.”

HMRC is concerned that captives could be used as a vehicle for tax avoidance as they are “commonly located in overseas tax jurisdictions which can lack transparency,” where the effectiveness of HMRC’s statutory information powers is limited.