Don’t worry. It’s a common question.
You’ve had an invoice through for your insurance renewal. It looks pretty similar to a VAT invoice, with the net cost, plus 12% (or sometimes 20%), and a total amount at the bottom.
To the casual observer, the only difference is that instead of “VAT” it says “IPT” at the bottom. This stands for Insurance Premium Tax.
As the tax amounts are often the same (there’s two rates of IPT – 12% or 20%), it’s easy to assume you can just reclaim this through your VAT return.
BAD NEWS!
You cannot reclaim IPT.
There. We said it.
Really sorry, but there we are. It’s a bummer, but there we are.
If you want to know more – or you’ve got an invoice which isn’t clear about what type of tax is being added – speak to your accountant before submitting your VAT return.
SO What’s The Point?
OK, this bit is not exciting BUT people understandably ask us “what’s the point of IPT… why doesn’t my insurance company just charge VAT like everyone else?”
Here’s the thing: Under EU rules on VAT (if you can’t sleep… search Council Directive 2006/112/EC), Insurance was specifically exempted from VAT across all member states.
So far so good.
But in 1990’s the government decided it would really quite like to collect some tax from Insurance companies, even if it wasn’t allowed to be called “VAT”, so they brought out the Insurance Premium Tax Regulations Act 1994 instead.
Sneaky!
This means insurance companies must apply the relevant rate of IPT (currently either 12% or 20%, plus 0% for some types of insurance) to their invoices.
So there you have it. Enjoy!
But if you still have questions on what you can and can’t claim through your VAT return head over to our contact page or click the orange button and let’s see what we can do for you ↘️
