Insurers taxed on holiday cover

Travel insurance companies will be liable to pay Insurance Premium Tax (IPT) on the full price of the holiday insurance they sell, even though a cut of it goes to the travel agent which sells the policy, at a VAT tribunal, writes Andreina Cordani.

Chubb Insurance Company has become the first organisation to appeal against IPT charges. It claimed travel agents increased the price of insurance policies to make a profit on the transaction.

Although the insurance company has no control over pricing, Chubb still faces an increased tax bill to match the higher price.

The tribunal rejected the argument, and stated: ‘The payment retained by the travel agent is referable to commission to which the travel agent is entitled, and is regarded, for the purposes of the tax, as received by the travel agent on behalf of (Chubb).’

Chubb will have to pay a bill of around #150,000.

Dario Garcia, the Ernst & Young partner representing Chubb, said: ‘The tribunal focused too much on what the consumer thought was happening, but Chubb has no control over that end transaction. In one case a consumer bought a policy at a premium of #139, but the travel agents only paid the insurance company #62 for the policy. Neither the consumer nor the insurer was aware of the mark-up.’

But insurance companies intend to fight the decision. Chubb is set to appeal against the decision by the end of May, and insurer London & General plans to bring a similar case later this year.

A Customs & Excise spokesperson said: ‘We welcome the decision and are satisfied it will not be overturned.’

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