Finance Bill Tracking Service 2010 | Budget 2010


Who may be affected?

1. Businesses that charge fees to an insured person in connection with contracts of insurance.

General description of the measure

2. Insurance premium tax (IPT) is paid by an insurer on the premium charged under a taxable insurance contract, which includes any commissions or fees unless they are charged to the insured under a separate contract. The 2009 Pre-Budget Report (PBR) announced that legislation would be introduced in Finance Bill 2010 to prevent avoidance involving fees charged under separate contracts and draft legislation to close this loophole was published for comment. In light of further discussion with industry representatives, the draft legislation has been refined to better target the avoidance and replaces the measure announced at PBR.

Operative date

3. The amended legislation will have effect for fee payments received on or after 24 March 2010. Such payments will now form part of the premium from which the insurer will be required to account for IPT in line with normal IPT accounting procedures.

Current law and proposed revisions

4. The provisions relating to IPT are contained within the Finance Act (FA) 1994. Section 72 of FA 1994 will be changed under primary legislation to exclude fees charged in connection with arrangements that meet the following conditions:

•    the insured is an individual who enters into the insurance contract in a personal capacity, i.e. the insured is not a limited company, charity or other organisation or an individual buying insurance for the purpose of their business;

•    the insured is required to enter into the relevant contract as a condition of entering into the taxable insurance contract, or would be unlikely to enter into the relevant contract without also entering into the insurance contract;

•    the terms and the price of the relevant contract are not negotiable by the insured; and

•    the amount charged to the insured under the taxable insurance contract is arrived at without a comprehensive assessment of the individual circumstances of the insured which might affect the level of risk.

5. This measure does not apply to insurance bought by businesses as avoidance has not been seen in this sector of the market. However, powers to make any necessary changes by secondary legislation are included in the legislation and HM Revenue & Customs (HMRC) will keep the situation under review. Consideration will be given to an extension of the scope of the provision at some time in the future should there be any evidence of the avoidance moving into other areas.

Further advice

6. Draft legislation and an explanatory note for this measure have been published today on the HMRC website. More detailed guidance will be published there shortly.

7. If you have any immediate questions about this change, please contact David Coppins on 020 7147 3228 (email: Information about Budget measures is available on the HM Revenue & Customs website at