IPT is an abbreviation for Insurance Premium Tax and is charged by insurers in addition to your insurance policy. The rate charged can be 12% or 20% depending on the type of insurance you are buying.
Coincidentally, in the last two days two clients have asked me about claiming IPT. When you purchase a mechanical item which comes with an insurance policy IPT is charged at 20%. Because of this rate, which is the same as the VAT rate, it is assumed that it is VAT which can be claimed back. It isn't and it can't be claimed.
IPT is an additional cost of your insurance and should be added on to the insurance cost to give a total cost for insurance. The two costs don't need to be separated in your accounts because they are one cost despite being separate on your invoice or receipt. This is because insurers must show the rate and amount of IPT.
Insurance and the IPT you are charged are allowable expenses in your business and can be set against your turnover to reduce your net profit.
Insurance businesses which are required to charge IPT must register with HMRC and have to submit returns every 3 months.
