1.Section 51 amends the definition of “premium” for insurance premium tax (IPT) purposes.
2.For IPT purposes, “premium” is defined in section 72 of the Finance Act (FA) 1994. Subsection (3) inserts new subsections (1AA) to (1AE) into section 72.
3.New subsection (1AA) brings fees charged under separate contracts back into the scope of IPT, if the conditions in the new subsections (1AB) to (1AE) are met.
4.New subsection (1AB) sets out condition A, that the insurance is provided to private individuals.
5.New subsection (1AC) sets out condition B, which relates to the connection between the (otherwise separate) contract and the taxable contract of insurance.
6.New subsection (1AD) sets out condition C, which provides that the terms and price of the relevant contract are not negotiable by the insured.
7.New subsection (1AE) sets out condition D, that the amount charged to the individual under the taxable insurance contract is arrived at without a comprehensive assessment having been undertaken of the individual circumstances of that person which might affect the level of risk.
8.Subsection (4) provides that the section may be amended by order.
9.Subsection (5) provides that any order made under subsection (4) would be subject to the affirmative resolution procedure.
10.Subsection (6) makes the provision in subsection (3) effective for payments received on or after 24 March 2010.
11.IPT is charged as an inclusive amount within the premium for a taxable insurance contract. As defined, the premium includes all payments received under the insurance contract and certain other payments related to it.
12.The section closes an avoidance loophole that exploited the use of separate contracts, which are excluded from the scope of IPT by section 72(1A)(b) of FA 1994, by means of an intermediary charging amounts under a separate contract with the insured that normally form part of the premium received by an insurer under a taxable contract of insurance.
13.The section does not apply to insurance bought by businesses, as avoidance has not been seen in this sector of the market – HM Revenue & Customs will keep the situation under review. The power in subsection (4) will allow any necessary changes to extend the scope of the provision to be made by secondary legislation at some time in the future should there be any evidence of the avoidance moving into other areas.