Sector fears rise in the insurance premium tax

A new rate of 12 per cent will cost charities £48m a year from June, according to opponents of the levy

The insurance premium tax, a tax on general insurance premiums, was until recently a relatively minor inconvenience for the charity sector. But by June 2017 the rate will have doubled from 6 per cent to 12 per cent in just 18 months, which has caused alarm among some in the charity sector and the insurance industry.

The charity sector spends an estimated £400m a year on insurance premiums, according to No Charity IPT, a campaign against the tax increase led by the charity specialist broker Access Insurance. The campaign estimates that the new IPT rate will cost the sector £48m a year and has launched a petition calling for charities to be exempted from the increase. According to the campaign, if a charity pays £5,000 a year on its insurance premiums - not uncommon - IPT will be £600 a year from June.

It also fears that the Treasury will increase the IPT to match the VAT rate of 20 per cent. Simon Hickman, chief executive of Access Insurance, says that smaller asset-owning charities will be particularly hard hit. He believes the government forgot about the charity sector when deciding to increase IPT, which explains the lack of charity exemptions or reductions.

"I don't think the government did an impact assessment on the effect that the rise in IPT would have on the charity sector," Hickman says. "But the fact remains that charities are trying to do things to help others, and it has always been a low-tax environment.

"There is every reason for IPT to be reduced or eradicated for charities."

Other charity sector bodies, notably the Charity Finance Group and the Charity Tax Group, support an IPT exemption for voluntary sector organisations. Jane Ellison, Financial Secretary to the Treasury, told parliament in January that an exemption would be "challenging", but some IPT exemptions exist for areas such as commercial aircraft, ships, life insurance and even the operation of spacecraft.

The Church of England is one charitable organisation that would be significantly affected by an increase in the IPT rate. Nicolas Jenni, national procurement officer for the CofE, says the increase will cost it £5.1m a year, the equivalent of 9,000 donations. "A lot of parish churches, rural parishes in particular, have historically important buildings that are expensive to maintain," says Jenni.

"Having to pay an extra 12 per cent to the exchequer in order to insure them is taking money away from the funds needed not only to maintain them but also from the business of the church. That is the reality. This must surely be an unintended consequence."

Deborah Clarke, rural evidence manager at Action with Communities in Rural England, the representative body for 38 rural community councils, says the previous IPT rises have increased financial pressures on village halls already facing VAT on refurbishment costs, rising energy prices and the prospect of councils removing the discretionary business rates relief.

She says: "Insurance is a requirement, not an option. Buildings are used by the public and the volunteers are liable should there be an accident. An insurance broker with a specialist village hall policy tells us that the average village hall premium will increase by £16 a year - this is a rise of 20 per cent, doubling since October 2015.

"There is currently little support from government for the maintenance and upkeep of village halls. The volunteers keep giving, so perhaps it's time for the government to use a proportion of the IPT to give back to rural communities and help them to help themselves."

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