Post-Brexit Changes to UK Insurance Premium Tax

Doubt seems to be the hallmark of the modern world. More than two years ago, Brexit came into force, but its economic and social consequences are still there. Although the UK has regained its tax future, insurers are facing many challenges related to insurance premium income tax, or IPT. At the time, the vote to leave the EU raised many questions for the industry, and these are still with us today.

The full digitization of IPT is on the horizon. Insurers and brokers will be required to regularly share transaction information with the government. In addition, as laws change in different jurisdictions, knowing which laws apply in different countries will be burdensome, and the result of serious mistakes.

In this article, we look at the key challenges and changes that UK insurers will face in the coming years after Brexit.

Deregistration

As a result of the Brexit vote, there was considerable uncertainty as to whether UK insurers would be able to insure risks in the remaining 27 EU countries, and whether EU insurers would be able to insure UK risks. In order to reassure their customers, insurers need to take steps to strengthen their business and improve it.

One part that is not clear is the registration removal. If a company has connected with an EU-based insurance company, it is necessary to close the previous tax registrations in the UK that were registered on the Freedom of Services basis pre-Brexit and to inform the relevant authorities about the changes in operations. . This, in turn, will leave the organization responsible for paying and complying with taxes. Removing these EU registrations is probably the best option for UK insurers who do not cease to operate but continue to operate in the UK and outside of Europe. This will help manage backlog registrations and any other reporting requirements based on the company’s progress.

It is also important to consider how the UK company has deregistered from the complaint and the associated license. Tax registrations can be held until the accounts are reconciled and closed. In such cases, some countries such as Germany, Portugal, and Spain, where the license remains with the controller, require tax compliance to be maintained until such time as the license is revoked.

Past Mistakes

As noted, UK insurers will no longer be able to book business in the EU on Freedom of Employment because the Brexit deal did not include financial requirements. With this in mind, one area of ​​uncertainty for many UK insurers is how they will declare and repay past IPT liabilities incurred by their UK subsidiaries before Brexit takes effect on Jan. 31, 2020.

How do UK insurers file IPT records in the EU? This varies from country to country, as do many topics related to compliance. In general, the EU authorities understand that debts listed on the Right to Work may still exist in the meantime and, therefore, there should be some way to help declare those debts. Old debts in the Netherlands, for example, can be disclosed through supplementary declarations. Similar measures could also be implemented in Germany, Finland and Luxembourg.

UK corporations may find it difficult to determine past liabilities if they are not registered, or have already been deregistered, in the country in which they are established. For example, UK companies wishing to declare their IPT in Slovakia cannot register in this country. However, if only old debts need to be declared, the tax authorities in Slovakia have confirmed that insurers can appoint a representative to settle these debts without the IPT registration being completed.

Although the following advice may conflict with the deregistration guidance given above, we recommend that, as a general rule, if a UK insurer expects to have historical debts in EU countries, it should be registered there until the final accounts are closed and any debts that are it has not been revealed and fully explained. Once this is done, the deregistration process can be carried out, if necessary. Now that it has been two years since Brexit came into effect, some countries, for example Portugal and Spain, have started to register UK companies with licenses in those areas.

Finding a representative who can advise you on how to declare and proceed with the history of IPT based on credit, if possible, according to the laws and guidelines of the country, is highly recommended.

Possible Changes

If the IPT reform is indeed made, the insurance sector will have to deal with the increased administrative workload. Today, the burden of ensuring that value added taxes and parafiscal charges are properly calculated in the law falls mainly on brokers. Therefore, the broker’s approval may be required before using any changes. Not only IPT rates can be changed, but also the entire reporting system.

For example, in the UK, IPT is currently required to be returned quarterly, but this could be replaced by an annual IPT return, with quarterly payments on an insurance account that pays most of the annual IPT. There may also be changes to the information provided in the return. In other words, underwriters must spend more time to meet reporting requirements.

The IPT changes will also affect any insurance options in the EU, including travel insurance. Since Brexit, brokers have taken great care to ensure full compliance in both sectors. This may affect the services they provide compared to the UK before it leaves the EU because, in some cases, brokers have to split rules and transfer them to other European businesses.

Items that are considered life options and are exempt from IPT, such as financial protection and health insurance for at least five years, as well as other life and term insurance policies, may be subject to additional tax. Charging a lower VAT rate of 12% is possible, to avoid deterring people from buying this type of insurance. However, given the potential changes, insurers will need to rely on brokers to confirm whether their client is a UK VAT registered business or an individual.

Brokers will need to ensure that taxes are paid and properly filed and paid to insurers. One important piece of information that businesses need to keep and submit is their UK VAT registration number. This should be included in the legal documents issued to them, if there are any issues with HM Revenue & Customs.

Planning for the Future

The changes in IPT have been minimal, especially compared to the VAT upheaval. However, the UK’s exit from the EU will open the door for IPT rates to be changed or scrapped altogether as key decisions come before January 2025.

In the longer term, it is possible that Brexit could result in the government applying 20% ​​VAT, on top of the current 12% IPT, to most tax-free insurance. In this context, if non-compliant insurers do not meet the requirements after switching from IPT to VAT, policyholders may be charged any taxes. A tax increase of 8%, on the other hand, would not be very popular among voters and would be seen as a fraudulent tax paid for higher insurance premiums.

Another option is to keep the IPT rate at 12% on compulsory insurance for the general public, such as home and car insurance. With this approach, the government would still be allowed to charge 20% on other types of non-traditional insurance such as directors and officers insurance. Unlike VAT, IPT is a non-refundable charge for all consumers, while VAT-registered businesses can claim VAT back on the payments they make.

In these uncertain times, when the insurance industry is trying to keep up with its customers, it is clear that some consideration should be given to the IPT results of the new and different methods that are emerging in this arena. With so many possible outcomes to plan for, businesses, including insurers, cannot afford to sit back and wait.

This article does not necessarily reflect the views of The Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Writing Notes

Russell Brown is Senior IPT Consulting Manager at Sovos.

The author can be contacted at: russell.brown@sovos.com