Published: Fri, November 25, 2016
Business | By Patricia Jimenez

National insurance 'stealth tax' of £200 slips below radar

National insurance 'stealth tax' of £200 slips below radar

The standard rate of insurance premium tax (IPT) is to increase to 12% from 10% from June 2017.

Continuing the theme from earlier years of tackling tax avoidance, the chancellor announced a new penalty for those enabling tax avoidance, a person who enables a business or a person to use a tax avoidance arrangement that is subsequently defeated by HMRC will be liable for the penalty.

Commenting on the changes, Tina Riches, an accountant at financial services firm Smith & Williamson, said: 'Is National Insurance becoming a enormous stealth tax?

From a ratings agency point of view, Helena Kingsley-Tomkins, assistant vice president-analyst at Moody's, said: "The rating agency believes this increase in the IPT, together with the FCA's new rules on insurance policy renewal disclosures, being introduced in April 2017, will limit insurers' ability to continue raising underlying risk-adjusted prices in home and motor, which could drive profit margin compression for United Kingdom general insurers in 2017".

"It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance". Increasing rates for both the drivers and the industry, this change has not gone down too well with the industry, with many insurers passing comment on the 12% increase on 50m general insurance policies each year.

Ryan added, "The case of reducing fraudulent claims is a huge and well documented battle facing the insurance industry and the introduction of a rule change on whiplash compensation is some relief".

According to the ABI the spate of IPT increases have added almost £26 to the average annual cost of auto insurance, £19 on building and content cover and imposed an extra £129 on individuals paying for health insurance.

"We are also concerned that the Government's whiplash reforms, while welcomed, will not achieve savings for motorists as only a small number of insurers have so far committed to passing the savings on".

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'IPT is paid as a percentage of your insurance premium so an increased rate means groups such as young drivers, or older people with medical insurance, are likely to be hit the hardest.

IPT was introduced in 1994 to raise revenue from the insurance sector, which was then viewed as being under-taxed.

'We understood that the previous 0.5 per cent IPT increase in the last Budget was specifically for raising an additional £700m funding for flood defence management - yet we are still no closer to understanding how this will be distributed.

Nick Warner, partner at Moore Stephens, also raised concerns that the increase "will discourage consumers and businesses to make sure they are fully insured".

Insurers have slammed the rise which has pushed the tax up to nearly double what it was in 2015 and they predict it will lead to an increase in the number of uninsured drivers on the road.

Romana Abdin, Chief Executive of Simplyhealth said:"The Chancellor talked today of targeted tax cuts but on IPT he has used the bluntest of instruments to raise revenue".

Steve Treloar, managing director for general insurance at LV=, adds to this: 'The Government has incorrectly stated that IPT is a tax on insurers - it's not, it's a tax that consumers have to pay when they purchase insurance.

The rise was announced by Chancellor Philip Hammond in his Autumn Statement speech today (23 November).

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