Liverpool-based National Federation of Retail Newsagents (NFRN) Mutual has discovered a way of selling insurance cover without paying insurance premium tax (IPT), it claims.

NFRN sends out quotations to clients detailing the sum covered and the limit of indemnity, but said that the contribution the client must pay was "exempt from insurance premium tax".

This has caused much confusion in the industry.

It was "mystifying," said an ABI spokesman.

"We've never heard anything like it," he added.

A spokesman for NFU Mutual was similarly baffled: "All our members have to pay IPT.

"If these guys at NFRN have found a loophole then we'd like to know about it."

NFRN's explanation is that it wasn't in fact selling insurance cover, despite the misleading "quotation" form, which included information on the amount of coverage, but that it was merely selling "membership" of the mutual.

According to a NFRN spokesman, "the mutual then buys cover on behalf of its members".