UK insurance premium tax hikes to 9.5%

Insurance premium tax is set to hike to 9.5 percent in the UK from 6 percent, George Osborne, the UK Chancellor of the Exchequer, revealed today.

This is expected to increase the Treasury’s finances by £530 million in 2015/2016, £1.46 billion in 2016/2017, increasing to £1.51 billion in 2017/2018.

According to the budget document, the tax rate “will remain lower than that of many other EU Member States.”

“Separately, the government will also introduce VAT provisions to level the playing field for insurers. This will deter insurers from routing costs via offshore associates and ensure UK VAT is accounted for an all repair services on UK insurance contracts,” it said.

Colin Graham, PwC global insurance tax leader, said: “The Summer Budget will largely be viewed as mixed news by groups in the insurance sector. The Chancellor has shown his commitment to ensuring Britain remains competitive by announcing a cut in corporation tax to 18 percent by 2020. However insurance, particularly the London market, is a global business and it is important that the Chancellor ensures the UK remains the most competitive place in the G20 to do business.

“However this positive feeling will be tempered by the rise in the standard rate of insurance premium tax to 9.5 percent from 1 November, changes to pension relief and greater regulation of claims management companies. It will be important that these new rules don’t create uncertainty and unnecessary cost for business. We are yet to see the detailed measures proposed.”

Huw Evans, director general of the Association of British Insurers (ABI), added: “Insurance premium tax is a tax on people and businesses at the point at which they buy a general insurance product. So it’s very disappointing to see a more than 50 percent tax increase being imposed on consumers, especially when the insurance industry and Government has worked so hard in recent years to bring down the cost of essential insurance.”