CAR INSURANCE CLAIMS, IPT & VAT
An explanation of how VAT and IPT taxes affects the car insurance premium you pay.
Value added tax
Value added tax makes it important for an insurer to know the tax status of a proposer. Policyholders (and claimants) fall into two categories: taxable and non-taxable.
Non-taxable persons are unable to recover V.A.T. paid on goods and services at the current rate and should, therefore, necessarily endure that their sums insured are sufficient to include such an item.
Some proposals, therefore, include a question to establish the tax status of the proposer, and the question assumes even greater importance in the settlement of any claims that may arise. If, for example, an insured is able to recover from the authorities a part or all of the V.A.T. which is charged on the cost of repairing accidental damage to his vehicle, then the insurer should ensure that the amount of tax recoverable is deducted from the repair account which is submitted to the insurers for settlement. The amount deducted should be dealt with and recovered by the insured himself and if insurers do not carefully examine each insured’s V.A.T. status they may find themselves paying more for the repairs than they need to.
When value added tax was first introduced to this country the insurance industry obtained from the government a concession for the insuring public in that the premiums actually paid by insureds are not subject to V.A.T but to Insurance Premium Tax (IPT) at the current rate of 6%.
This applies to every class of insurance business but it cannot be said that the car insuring public has escaped completely the impact of this VAT where insurance is concerned, particularly when it comes to making a claim.
Car Insurer’s Claims expenditure on such items as motor vehicle accidental damage repairs has increased because such repairs are subject to V.A.T. and the increased cost to insurers inevitably has to be passed on to the insuring public in the form of higher premiums for most classes of insurance – including car insurance.
Thus, the insured may derive some comfort from the fact that the premium he pays is not subject to V.A.T. but the impact of V.A.T. has been felt – if only indirectly – in this aspect of daily life as in almost all others...
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