The rate of Insurance Premium Tax (IPT) will rise by two per cent on June 1 to 12 per cent on all non-exempt transactions. Martin Bennison, managing director at construction finance firm Ultimate Finance, explains what this means for UK construction companies.
1 – The rise, the third in 18 months, was announced by Philip Hammond in his Autumn Statement in 2016 and will bring an extra £650 million into the Treasury in the next financial year alone. Unlike VAT, no element of IPT can be reclaimed by businesses.
2 – It’s hard to find anyone outside the HM Treasury who thinks the rise is good idea. The Association of British Insurers said the rise was a “hammer blow for the hard-pressed” and representatives from all the major insurance sectors, both private and commercial, have decried what they see as a “stealth” rise.
3 – There are fears that construction industry will suffer particularly. So says the Federation of Master Builders (FMB) who have warned that small and medium-sized construction firms often can’t afford to absorb the costs themselves and will have to raise their prices. This leaves them more vulnerable than ever to being undercut by less reputable firms, working cash-in-hand and who pay no IPT whatsoever. This is a worrying situation; a double-whammy of damage to the industry in which less conscientious firms get even more work while honest SMEs are driven out of business, shedding jobs and damaging both local and national economies.
4 – There’s also concern that the IPT rise will make the industry more dangerous. James Dalton, director of general insurance policy at the Association of British Insurers he says that the IPT rise, “could cost jobs, drive up prices” and that companies “may decide to reduce their insurance cover” because of the rise. This may save money but what happens when there’s a site accident? Who foots the bill when a claim needs to be made? Who covers the legal costs when a company is taken to court? Insufficient insurance is not only illegal; it’s dangerous.
5 – Help with business finance and cashflow is available. We’re proud of our record in supporting the construction industry and our specialist Construction Finance product is available to Limited businesses that have been trading for at least a year and have a turnover in excess of £500K. We also have a range of other products designed to give businesses the financial help they need, including our Cash Advance that can put money in accounts in record time.
Written by Martin Bennison, managing director at Ultimate Finance .