By Matthew Judge, Technical Director at Jelf Employee Benefits
Following the announcement in the Chancellor‘s 2015 budget on Wednesday that Insurance Premium Tax (IPT) will increase from 6% to 9.5%, there are actions that employers can take to mitigate its impact, and we advise them to act now. Here are four key areas for employers to consider:
1. Employers considering providing Private Medical Insurance (PMI) as a new employee benefit would be wise to do so before November 2015. This increase in tax cannot be avoided but taking action now will delay the impact for another year.
2. Employers considering expanding an existing PMI scheme would be sensible to do so immediately and definitely before November 2015. Insurance providers will still be trying to establish what impact the new 9.5% charge will have on premiums paid after November.
3. If employers currently provide PMI for a large number of people where the scheme is influenced by their own claims experience then they may do well to consider setting up a Healthcare Trust. Among other benefits, Healthcare Trusts do not attract IPT.
4. Another innovative way to reduce IPT is via a corporate level deductible (or excess) that is equivalent to all or most of the claims fund.
The message we want to convey is that it is important to act now. There are a number of options available for employers to reduce the IPT burden; some of them may sound complicated – because it might be a different way of working – but they’re not, and, of course, we’re here to help.
When IPT was first introduced it was set at a flat rate of 2.5% but it was increased on general insurance products to 4% in 1997, to 5% in 1999 and 6% from January 2011. We advise that the recent budget announcement that IPT in the UK will rise by 58% from 6% to 9.5% will require some serious thought, particularly in the provision of medical insurance benefits.
The current level of IPT in the UK has remained relatively low at 6% when compared to mainland Europe where average IPT levels have been around 10%, although taxation on healthcare insurance policies in some countries is treated differently. Employers should therefore talk to healthcare specialists as soon as possible.