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Guest opinion: the impact on dealers of the rise in insurance premiums


As we approach the 2016 Budget, it is no secret that we are likely to see increases to insurance premium tax (IPT).

Unlike VAT, its older sibling, IPT was not subject to the infamous 'triple lock', which promised the rate would not be tampered with.

It is likely that tomorrow’s Budget will announce a rise in the rate of IPT from 9.5% to 12.5%, raising an extra £1.5 billion per year. Good news for the Treasury, bad news for our premiums.

The other reason why we are likely to see premiums go up is less obvious.

It stems from the changes in the VAT ‘place of supply’ rules announced in the Summer Budget 2015.

These rules dictate where VAT is due.

So what is the big change?

It affects repair services performed on 'moveable' property, so it covers repairs to motor vehicles.

The way things stand currently, if you perform such repair work in a B2B (business to business) context, the 'place of supply' is where your customer is.

If we imagine that your business customer is an insurer, and that the insurer is based in the UK, then in most cases UK VAT would be chargeable on your supply.

However, if the insurer is based outside the UK, in the US for example, then there is a good chance that your repair services will be VAT free as they will be considered 'outside the scope' of VAT.

This became an opportunity for some insurers as a VAT mitigation tool.

The proposed legislation specifically distinguishes repair works when they are performed under a contract of insurance. It introduces 'use and enjoyment' provisions so that the supplies will not escape a charge to VAT.

In our example above, if the repair services were rendered in the UK, ie 'used and enjoyed' here, but the insurer was based outside of the EU (e.g. in the US), then the 'place of supply' would be the UK and UK VAT would apply at the standard rate.

The changes should help level the playing field between insurers, eliminating the VAT advantage of setting up offshore, but it may also have an impact on premiums for some as any irrecoverable VAT  is invariably passed on to customers.

Authors (pictured): Alison Horner, VAT partner and Kursat Osman, VAT senior manager, MHA MacIntyre Hudson.

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