Why do I need to know about IPT and VAT changes?

Understanding the upcoming changes in insurance premium tax (IPT) and VAT is vital to all individuals and businesses.

How will changes to IPT affect me?

From the 4th of January 2011, some insurance policy holders will incur a 1% rise in IPT from 5% to 6%, whether it is a small business insurance policy or a personal car policy.

For new and renewing insurance policies, the rate of IPT charged will depend on the start date of the policy – not the day that the policy was taken out or renewed. Additionally, all existing policies that are changed after the 4th of January will incur increased IPT charges, except possibly for those that result in a refund.

As a result, your insurance policies may be slightly more expensive but this 1% change will not be significant to most.

What about changes to VAT?

The Government has agreed on a 2.5% increase in VAT which will also take effect on the 4th January 2011. An increase in cost of VAT from 17.5% to 20% could affect individuals and businesses considerably.

VAT will apply on the day that the purchase is made. Therefore in the event of a claim occurring on/after 4th January the item being replaced will cost more due to the increase in VAT. This could impact on your overall sum insured as it may not be adequate following the change to VAT.

Here’s an example to demonstrate the above:

You have a home contents insurance policy, which you purchased before the 4th of January, and you estimated a sum insured of £20,000 to cover the cost of your contents. After the 4th of January 2011, if something was to happen, and you need to make a claim, £20,000 would not be enough to replace these items, as the majority of the items will have incurred a 2.5% increase in VAT.

To avoid the possibility of having to pay the difference out of your own pocket in the event of a claim, we suggest that you review your sums insured to ensure you have the correct level of cover in place.

Finally, if your insurance policy is due for renewal any time between Christmas Eve and the 4th January, it is recommended that you renew before Christmas Eve. Many businesses will be closed over the festive season and you don’t want to be inadequately covered because your renewal falls on a day that offices are closed.

Get a public and employers liability insurance quote now.

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