You may have heard in the news that Insurance Premium Tax has been increased by the government. This move was announced during the Chancellors Budget, and will rise from 6% to 9.5% in November 2015. It is expected to generate £1.75bn per year for the Treasury.
While the insurance industry as a whole does not welcome this move it is important to note that this is the first significant hike in the standard rate of this tax since 1996.
Who will be affected?
Insurance Premium Tax will impact all insurance customers whether you have a Personal insurance policy or a Business policy. Effective on the 1st November 2015, the increase will be applied to all renewals and new business:
- Inception/renewal date before 1 November 2015: 6%
- Inception/renewal date on or after 1 November 2015: 9.5%
The Chancellor claims the increase will only affect one-fifth of all premiums, but the British Insurance Brokers Association criticised the move calling it a “stealth tax” on insurance policies that would in fact hit millions.
The association went on to suggest the move was a hypocritical one as the Government had been working with the industry to reduce the cost of insurance for customers, which included a summit chaired by the Prime Minister. Its chief executive Steve White said “it seems counterintuitive to be taking measures that will add to the cost – effectively taxing protection”.
What this could mean
While this move will impact insurers and brokers alike, the real cost is to our end customers where effectively a 3.5% increase in premiums will need to be paid.
As this tax move will increase the cost of insurance policies on or after November 1st, it has been suggested that it may be the trigger where customers decide insurance is too expensive. If this is true, customers may choose to reduce cover or even decide to have no cover at all.
Reducing your insurance in the face of this tax increase may prove cost effective in the short term, but it could put your business at risk. However, it could expose you to a major shortfall should you ever need to make a claim. Underinsurance will make it significantly harder for your business to bounce back successfully after a major loss. To ensure your business is adequately insured and that it doesn’t have any redundant policies, you should contact a broker who will run through all of your policies to make sure your insurance is fit for purpose.