During Committee stage of the Finance (No.2 Bill) there was consideration of Clause 58 which legislates for the increase in the standard rate of insurance premium tax from 10% to 12% as the Chancellor announced in the autumn statement 2016. This change will be effective from 1 June 2017.
Steve Pound MP (Labour) highlighted concerns about the impact on his local scout group and asked whether there had been further consideration of an exemption for all or some types of charities.
The Financial Secretary to the Treasury, Jane Ellison, noted that this issues had been discussed in general terms, including at the Charity Tax Group conference. She noted that the point that she made there was that although Government was not making exceptions for a number of reasons—some of them logistical—there were many different ways in which the Government exempt tax for charities and try to support them in other ways. She stated that the existing tax reliefs that go to charities and community groups in this country are worth many billions, and many are not taken up as much as they should be. She highlighted the fact that the issue of scout groups got a very thorough airing during the passage of the Gift Aid Small Donation Scheme (GASDS) measures that passed through Parliament in autumn 2016 – these measures were designed to help such groups that do a lot of their fundraising outside their headquarters. She said that while she could not give him comfort on this issue, she would draw his attention to the fact that there were many other ways in which Government helped to relieve worthy groups.
In response to a question on the justification of the increase to 12%, the third increase in just 18 months. The Minister said by increasing insurance premium tax, Government would ensure that it can maintain the balance between that investment and controlling the deficit. She noted that the changes IPT changes would raise approximately £840 million each year
The additional revenue gives the Government the flexibility to invest. She noted that IPT is a tax on insurers and that they are not in any way obliged to pass on the tax through higher premiums. However, she noted, if insurers do choose to pass on the increase, it will be spread thinly across a wide range of people and businesses. She indicated that in line with the informal agreement between the Government and the Association of British Insurers (ABI), firms have been given more than six months’ notice, which gives time to implement the change.
Following the debate it was agreed that Clause 58 should be ordered to stand part of the Bill.
CTG Chairman John Hemming recently commented on the recent Insurance Premium Tax increase:
“This Government revenue raiser has a disproportionate impact on charities (especially those with a large portfolio of operational buildings and extensive transport and travel commitments) and we have serious concerns about rumours that IPT may eventually be increased to 20%, in line with VAT. While the Minister is right to say that it is a tax on insurers we are not aware of any instances where the tax is not passed on to consumers, so that argument is not representative of practical reality.
“CTG recently launched a charity IPT survey which has received almost 100 responses to date and we plan to publish the findings of this survey later this month as part of our Budget representations. A large number of village halls have responded to our survey and while in monetary terms the additional cost is relatively low, their IPT burden now represents a significant proportion of their overall expenditure. For the largest five payers in our survey alone, the increase will cost a total of £170,000, with their total IPT costs in 2017 now over £1m. The survey also indicates that in addition to buildings, contents, motor and travel insurance charities pay a wide range of different premiums.
“CTG is working with the Association of British Insurers (ABI) and sector partners to develop this evidence base to support our representations to Government for a freeze on IPT increases for charities or the extension of existing limited reliefs. While we recognise that it would be inappropriate for charities to benefit from exemptions on private medical insurance for staff, there is a very strong case for relief where insurance is a necessary and responsible requirement as part core charitable activities.
“We would encourage all affected charities to complete our survey https://www.charitytaxgroup.org.uk/consultation/survey-assess-cost-insurance-premium-tax-increase/”