The trade body discusses the challenges that insurance premium tax causes the insurtech sector in the run up to the topic potentially being debated later this week on 3 March

Trade body Insurtech UK has called for an end to the current VAT regime for insurtechs.

It has urged insurtech intermediaries to reclaim VAT on their costs and highlighted the challenges faced by the sector under this practice ahead of this year’s Spring Budget on 3 March, where insurance premium tax (IPT) is expected to be discussed.

Insurtech UK has called upon HM Treasury to consider how it can use its new freedoms outside of the European Union (EU) to create a more innovation-friendly landscape for insurtech intermediaries.

The trade body believes resolving the current VAT issue would be in line with the Treasury’s stated objective of promoting a “vibrant, innovative and internationally competitive insurance sector” as well as aligning with Prudential Regulation Authority’s goal of “promoting developments in driving further digital insurance and innovation”.

James York and Luisa Barile, co-chairs at Insurtech UK, said: “There are reports that the chancellor may be considering a rise in IPT at this Budget, as part of an initial plan of tax rises to help rebuild the public finances due to Covid-19. We would firstly urge caution in that matter at a time when the entire economy needs some breathing space to get back on its feet.

“This would only add an additional cost burden to customers. However, if action is taken, then we call upon the chancellor to end the anomaly within the tax regime facing insurtech intermediaries in the UK, where they cannot reclaim any VAT on incurred costs.

“As technology intensive businesses, a larger proportion of costs for insurtechs are liable for VAT, acting as a disincentive for investors. Whilst the insurtech sector has seen considerable growth in the UK in recent years (even through the pandemic), VAT costs undoubtably holds it back.

“This is something that Insurtech UK has consistently raised with HM Treasury and HMRC over the past 18 months. An end to this regime would allow the sector to grow faster, bringing wider benefits to both consumers and the broader economy.”

Insurtech UK has raised this issue with HM Treasury and HMRC several times, both in meetings and through consultation responses.

It recognises the chancellor of the exchequer, Rishi Sunak, may be considering increasing IPT in the upcoming Budget, as part of an initial plan of tax rises to help rebuild the public finances due to Covid-19.

Insurtech UK said it would welcome and participate in a wider consultation with relevant stakeholders on the role of IPT.


The firm intends on highlighting the ongoing effects that insurtech intermediaries face by being unable to claim VAT on their costs.

The trade body is conscious that customers may be paying for these tax increases at a time when the entire economy is fragile and trying to recover.

If action is taken to move insurance premium tax similarly in line with VAT, it has asked the chancellor to close this anomaly for insurtech intermediaries and allow them to reclaim VAT on incurred costs.

Much of the UK insurtech sector is focused on intermediary businesses, such as MGAs and brokers, that use digital skills to improve the consumer experience, for example across insurance purchasing and claims.

Insurtech intermediaries that are directly offering premiums to customers are required to pass on the cost of IPT into the insurance premiums they offer. They collect this on behalf of the insurers that provide their underwriting capacity.

Although the insurance is still provided by the insurer, the insurtech intermediatory collects IPT on the policies they offer on behalf of the insurers, which is then paid to HMRC.

Unlike traditional insurers, the business models of insurtechs are focused on costs that are liable for VAT – digital marketing, tech infrastructure and professional services.

These costs form a large part of insurtech firms’ outgoing costs.

However, due to the current arrangements, any insurtechs involved in the distribution of IPT are deemed VAT exempt - this means they cannot reclaim the VAT added onto these costs and, therefore, these businesses are effectively paying 120% for 100% of a product or service.

For startups that are reliant on external investment and want to grow, Insurtech UK admitted that this regime is particularly unhelpful and could act as a disincentive to early-stage investors.

This is because it can be tough to convince investors to choose to back a business when there is a 20% levy on many costs that cannot be reclaimed.


Insurtech UK believes that reducing available capital for growth in a dynamic technology sector is self-defeating.

UK insurtechs have managed to attract over £1.6bn in funding since 2015.

The trade body said that a fairer VAT regime would undoubtedly encourage even more investment and enable insurtechs to scale quicker.

On top of this it would help provide an even greater contribution to the UK economy via more jobs and higher tax receipts, as well as driving further insurance innovation, which is vitally needed for consumers.