BDO response to the Budget June 2010 - Insurance Companies to Breathe a Sigh of Relief

Standard rate of IPT to increase from 5% to 6% on 4 January 2011

Insurers were bracing themselves for a potential doubling of Insurance Premium Tax (IPT) rates, so today’s announcement by the Chancellor will come as a welcome relief. IPT covers a variety of areas including property and motor, but excludes life policies and is largely invisible to most consumers.

Marc Welby, Indirect Taxes Partner, BDO LLP commented: “This measure will yield £0.5bn extra revenue for the Treasury annually and yet at 6%, the rate is still one of the lowest in the EU (19% in Germany, 21.25% in Italy and 9% in France). This means that the Chancellor still has ample scope for further increases through the course of this Parliament.

“The impact on premiums at this level should not result in any noticeable fall off in consumers seeking cover for houses or cars even if the insurers pass on the full cost.

The higher rate of IPT has gone up from 17.5 % to 20% in-line with the VAT hike. The higher rate was introduced to counter certain avoidance schemes.

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Notes to Editors

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