Is There VAT on Car Insurance?
If you’ve ever looked closely at your car insurance premium, you might wonder: “Is there VAT on car insurance?”. The simple answer is no, car insurance is exempt from VAT in the UK. However, this doesn’t mean your policy is tax-free.
Instead of VAT, car insurance is subject to Insurance Premium Tax (IPT), a separate tax levied by the government.
Key points
What Is Insurance Premium Tax (IPT)?
Insurance Premium Tax is a mandatory charge applied to most insurance policies in the UK. For car insurance, IPT is usually set at 12%. This tax is already included in your quoted premium, so you don’t need to calculate or pay it separately.
For example, if your car insurance premium is £500, around £53.57 of that is IPT.
Why Isn’t VAT Applied to Insurance?
Insurance services are classed as VAT-exempt under UK tax law. This means insurers do not charge VAT on your policy, and businesses cannot reclaim VAT on insurance like they can on most goods and services.
When Might VAT Apply in an Insurance-Related Cost?
While the insurance premium itself is VAT-free, VAT can apply to certain additional services or products sold alongside your policy, such as:
- Breakdown cover (if sold separately)
- Legal expenses cover (from a third party)
- Admin fees charged by brokers or comparison sites
In these cases, the supplier may charge VAT and provide a VAT invoice.
Is IPT the same as VAT?
No. IPT is a separate tax designed specifically for insurance. It has different rules and rates.
Can businesses reclaim IPT like VAT?
No. IPT cannot be reclaimed, it’s a non-recoverable tax.
Is VAT ever included in car insurance quotes?
Not for the core insurance premium. If additional services are included and subject to VAT, it should be itemised separately.
Do other types of insurance have VAT?
No. Most insurance products in the UK are exempt from VAT but are subject to IPT.
In Summary
- Car insurance is not subject to VAT in the UK.
- Instead, it includes Insurance Premium Tax (IPT) at 12%.
- VAT may apply to certain optional extras or broker/admin fees.
- Always check your breakdown of costs if unsure.
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