New tax charge creating confusion and administrative headaches

Broker Network chairman Grant Ellis has called on the government to overturn its controversial extension of insurance premium tax (IPT) to administration charges on personal lines insurance.

Meanwhile, Biba and other trade bodies continued emergency talks with HM Revenue & Customs over the shock decision, announced late last year by chancellor Alistair Darling.

Ellis said the move to extend IPT to admin fees, designed to stop tax avoidance following a court case between HMRC and Homeserve, was “completely unworkable”.

The tax was introduced with effect from December, so in theory brokers should be collecting it now. There is widespread confusion about how it should be collected, however. HMRC has said brokers should collect the tax, then pass it on to insurers, which will in turn pay it to the government.

But neither brokers nor insurers have the systems in place to do this. In many cases, several insurers provide policies to an end user, with the broker charging just one arrangement fee – meaning they would not know which insurer to pay the tax to.

Ellis said: “Most brokers are completely and utterly bemused; the cost of bringing it all in is going to be huge. I don’t believe HMRC’s view that insurers are going to collect it is workable, so they are going to have to register every broker in the land to collect IPT. The revenue from it will be about £10m – it’s going to cost HMRC more than that to put the systems into place.

He added that brokers needed to decide whether or not to collect IPT now. If they did not collect it, they could be liable to pay a lump sum to the revenue at the end of the tax year. If they did collect it and the decision was reversed, they would have to refund it to customers.

Ellis said: “It’s a big distraction to the industry, at a time when we could have done without it.”

Late last year, Biba and the IIB met with officials at HMRC. A Biba spokesman said: “The meeting was constructive, with both sides agreeing to meet again to discuss whether an alternative can be found to the draft legislation contained in the pre-Budget report. Any alternative would need to effectively close the ‘loophole’ created by the Homeserve case.

“In the meantime, both Biba and IIB urge its members to continue to prepare for the application of IPT to fees. Queries on the detail of collection should be referred to the relevant insurer.”

A HMRC spokesman said: “We are concerned that this measure is targeted as tightly as possible on the known tax avoidance and will continue to listen to industry concerns and take further action to address them where possible.”