Do You Pay VAT on Insurance?

Understanding the tax implications of insurance is important for both businesses and individuals. This blog post addresses key questions: do you pay VAT on insurance, is insurance exempt from VAT, is there VAT on insurance, UK and is insurance subject to VAT?

 In the UK, you do not pay VAT on insurance. Instead, Insurance Premium Tax (IPT) is applied to insurance premiums. IPT is included in the price you pay for insurance policies, serving as a separate tax specifically for insurance, distinct from VAT. 

Insurance services are exempt from VAT under the VAT Act 1994. This means no VAT is charged on insurance premiums. However, IPT is applied to insurance policies instead. The rate of IPT depends on the type of insurance and the provider.

There are two rates of IPT: the standard rate and the higher rate. The standard rate of IPT is 12%, which applies to most types of insurance, including car, pet and home insurance. This rate is included in the premium you pay for these insurance policies.

The higher rate of IPT is 20% and applies to travel insurance, as well as insurance arranged by suppliers for vehicles, including hired vehicles (though the standard 12% rate applies to ordinary motor insurance). It also applies to insurance for electronic goods and household appliances, including gas central heating (but not mobile phones).

Certain types of insurance are exempt from IPT. These include life insurance and income protection insurance.

To summarise, the answer to "do you pay VAT on insurance" is no. Insurance policies are subject to Insurance Premium Tax (IPT) instead of VAT. The rate of IPT varies depending on the type of insurance and the provider. Understanding these details can help consumers and businesses manage their insurance costs effectively. While insurance premiums are exempt from VAT, IPT is a key tax consideration for insurance in the UK.