IPT03150 – Overview and the law: why we have an Insurance Premium Tax
Insurance Premium Tax was introduced in 1994 to raise revenue from a sector that was viewed as under-taxed and is not subject to VAT. The law relating to indirect taxation on insurance in the European Union, is contained in Article 135 and Article 401 of the Principal VAT Directive 2006/112 (formerly Articles 13B(a) and 33(1) of the Sixth VAT Directive). Article 135(1)(a) provides an exemption from VAT for:
‘insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents.’
Because of this exemption, it was not possible to extend the scope of VAT to include insurance while the UK was a member of the European Union. However, Article 401 of the Principal VAT Directive states:
‘Without prejudice to other Community provisions … this Directive shall not prevent a member state from maintaining or introducing taxes on insurance contracts, which cannot be characterised as turnover taxes…’
Source gov.uk
