Have you paid insurance premium tax on your purchases over the last year? If so, you may be eligible to reclaim it on your VAT return, but it’s important to file your return correctly or face a hefty fine from HMRC. Sometimes, there are reasons your insurance claim might be rejected.
Let us take you through everything you need to know about claiming insurance premium tax on your VAT return, starting with what exactly insurance premium tax is and why it exists in the first place.
Reclaim Insurance Premium Tax.
Have you ever wondered if there’s a way to reclaim Insurance Premium Tax (IPT) for business car or van insurance? By using your £2,000 annual flat rate expense allowance for vehicle running costs, you can.
Many small businesses overlook IPT as a cost because it isn’t an annual expense that can be tracked easily. If you’re considering changing insurers, don’t forget to factor in any increase in IPT that may result from doing so.
It is also possible to claim back up to 12% of your private fuel costs as a cash-back allowance. However, you’ll need receipts and fuel consumption data to support any claims made.
Claiming Insurance Premium Tax
Since 1st January 2015, if you have a business with a turnover of less than £77,000 per year and are registered for VAT purposes, you can reclaim Insurance Premium Tax (IPT) by completing Section 20 on your annual Business Rates Return. Your insurer will also issue an IPT certificate that you can use to support your claim. If your turnover is more than £77,000 and you’re not registered for VAT purposes, you cannot reclaim IPT.
How long does it take to get insurance?
However, any input tax will be recoverable from HMRC via your normal corporation tax return. Note that where there has been a failure to deduct IPT at source (by way of payment or a credit note), repayment requests may result in greater amounts being due.
The Value Added Tax Act 1994, Schedule 7-Exemptions from Liability to be Registered and from Charging
Section 8(4)(e), Exemption for Supplies of a. plant and machinery, etc., and b. goods that are not normally intended for private use or consumption. This exemption applies to businesses that supply equipment to other businesses to comply with health and safety standards, including catering equipment such as food preparation machines and coffee machines.
The Act states specifically that no trader may recover input tax incurred in supplying qualifying plant or machinery if they are then required to place those same items into service (i.e., sell them) without having made any payment for them, provided that both parties were registered at all times during their business relationship.
Compulsory Registration for Suppliers of Excisable Goods
In addition to registering for Value Added Tax (VAT), all suppliers of excisable goods must also register for Insurance Premium Tax (IPT). Excisable goods include cigarettes, alcohol, petroleum products, and vehicles. VAT and IPT are charged at a combined rate of 20%. This means that those registered for both taxes pay only one tax on their purchases of these goods.
When You Must Register as a Supplier
To claim back all or some of your insurance premium costs on your VAT return, you’ll first need to register as a supplier with HMRC. If you wish to deduct input tax incurred for business purposes and not just for personal use, you must register.
Applying to HMRC for Voluntary Registration
If you want to be registered for VAT voluntarily because you want to charge and account for VAT, you can find more information about registering here. You’ll need to register before you can claim back any insurance premium tax on your supply of goods or services.
A separate application must be made for each UK location where you have a business presence. Depending on your circumstances, HMRC may charge a registration fee for each application.
Once registered for VAT, if you make a sale during a period which falls within your first six months of operation, it will not be subject to payment of insurance premium tax.
Notification of Supply
To charge Vat for an item or service, you must notify HMRC of your intention to supply by sending a Notification of Supply form. You can find details about these and how to fill them in our booklet Notifying HMRC of Your VAT Supplies (VAT Notice 741A).
The title may seem confusing, but it’s worth emphasizing that it applies to physical goods and services. You need notification if you’re selling anything for VAT – it doesn’t matter whether you are a business selling products or just buying something in your name and selling as second-hand!
Payments on Account and Adjustments
If you claim any input tax related to payments on account, you may need to make a repayment adjustment. If you’re registered for VAT, HMRC will send you an adjustment for your second quarter VAT return.
This is because your payments on account were too high, or there were adjustments to your accruals, refunds, or adjustments in previous periods that were not considered. You will only be able to reclaim excess input tax for periods up to three months before your second-quarter return is due.
10 Reasons an Insurance Claim Can Be Denied
Monthly Returns and Payments by Direct Debit or Standing Order
You can pay contributions monthly if you’re paying your VAT by direct debit or standing order. If you prefer, you can even spread your payments out over several months; if you prefer, send a letter to HMRC giving them details of how much you want to pay and when (give at least one month’s notice). You should also include your bank account number so they can make payments into it directly.
It would be best if you showed that you have paid tax on the interest and that you have not been claiming a tax deduction for the interest.
This is not a problem if the interest is part of the loan, you have been paying tax on the loan, and you have not been claiming a tax deduction for the interest.
The next issue is whether the interest you have been paying on your loan is tax-deductible. This is a question of law. If you can show that the interest you have been paying is interest on the loan, then you can claim a tax deduction for the interest.
In conclusion, the rule is that if you claim the tax back, you need to be able to show that you have been paying the tax for the period for which you are claiming it back.