Changes narrow the scope of changes to tax

Broker trade bodies have welcomed the government’s decision to water down its controversial clampdown on IPT (insurance premium tax).

Under revisions to the draft legislation announced in November’s Pre-Budget Report, IPT will be charged on intermediary fees only under certain specific conditions. The administration and arrangement fees charged by brokers for individually rated products including conventional motor and household insurances should generally fall outside the IPT net. The revisions significantly narrow the scope of the revisions to IPT.

Steve White, Biba's head of compliance and training, said: “We are pleased that HMRC has reconsidered the effects of its draft legislation and, that following the joint efforts of Biba and the IIB, has largely accepted our suggested amendments. This is the result of lengthy and delicate negotiations and represents what we believe to be the best possible result for the intermediary sector”.

Ann Peel, IIB head of technical services, added: “It was vital that broker representatives spoke with one strong voice on this issue. There is no doubt that without our intervention brokers would have been forced to disclose their fees on personal lines business to insurers. In turn, the insurers would have had the extraordinary task of accounting for tax on professional fees over which they had no control.”

The government’s motivation for the change in IPT legislation is to prevent ‘premium splitting’ whereby administration fees are separated from the premium in order to avoid IPT – a problem exposed by the ‘Homeserve’ case in the Court of Appeal. The new measures will come into effect with immediate effect.