Biba chief executive Galbraith calls unexpected measure ‘a large hammer to crack a small nut’

The industry reacted with fury this week to Chancellor Alistair Darling’s surprise announcement of changes to insurance premium tax (IPT).

The ABI and Biba have held emergency talks over the measures, designed to raise up to £10m for the Treasury, and have requested meetings with government officials.

Biba lambasted Darling for failing to consult with the industry on the changes, which mean that IPT now has to be paid on fees charged separately to premiums on certain types of personal lines insurance.

The chancellor also announced that the 17.5% higher rate of IPT would now apply to certain types of companies that were previously exempt.

Biba chief executive Eric Galbraith said: “The process of closing this loophole has brought all fees charged into scope. This is not only a further cost to consumers but a huge cost to many members, and we are very concerned.

“The measure has been brought in without any pre-warning or discussion with the industry. Expecting brokers to change processes and systems without allowing any timescale to introduce these is absurd. Frankly, I do not believe that applying IPT to the administration fees charged by brokers completely separate from the insurance policy, where IPT already applies, was intended. This is taking a large hammer to crack a small nut.

“There are a number of questions that need to be addressed and we will be working on behalf of members to answer these.”

In the Pre-Budget Report, released on Thursday, the government said: “IPT is paid by an insurer on the gross premium charged under a taxable insurance contract, which includes any commissions or fees, unless they are charged to the insured under a separate contract.

“Legislation will be introduced into the Finance Bill 2010, effective from today, to close an avoidance scheme involving an administration fee charged under a separate contract. The legislation brings certain fees charged under a separate contract in connection with personal lines insurance into the scope of IPT.”

See analysis: Tax avoidance is the target