The July 2015 Budget was announced by David Cameron’s Conservative government shortly after the general election in May, and replaces the previous Budget introduced by the coalition government in March. Adjustments to spending in different sectors, and to tax rates, mean that some people will find themselves better off financially under the new Budget, while others will experience lower earnings. Every Budget has its winners and losers, and will produce at least a few changes that will have some sectors of the population protesting.
Motor traders may be affected by several aspects of the new Budget, including changes to Vehicle Excise Duty and to the MOT. Now, new cars will require an MOT after four years, rather than three. Perhaps the most significant difference, however, is the rise in Insurance Premium Tax from 6% to 9.5%.
Insurers and insurance intermediaries are required to register for Insurance Premium Tax. As the name suggests, this is a tax paid on insurance premiums, which are exempt from Value Added Tax. The Income Premium Tax rate has changed three times since its introduction in 1994, rising in each case. The current rate of 6% was introduced in 2011.
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Income Premium Tax is reflected in the cost of an insurance policy, including vehicle insurance. Private vehicle owners may notice a rise in the cost of their premium. Administration fees also come under Insurance Premium Tax, so these may also increase. Businesses and individuals in the motor trade, who need to insure a large number of vehicles, are likely to see a significant increase in insurance costs. One exception will be cars registered under the Motability scheme for drivers with a disability, since these are exempt from tax.
Over the past few years, consumers have benefited from falling insurance premiums. However, 2015 has already seen increases in the average cost of car insurance, and prices may well rise more sharply following the introduction of the new Insurance Premium Tax rate.
In his Budget speech, Chancellor George Osborne pointed out that Insurance Premium Tax in the UK is far lower than tax rates in many other countries, and that the tax affects only 5% of insurance premiums.
Some motor traders may find that they make savings elsewhere as a result of the Budget, which could help cover any rise in insurance premium costs. For instance, small businesses will benefit from a reduction in the National Insurance contributions they must make. A new National Living Wage, which will reach £9 an hour by 2020, is balanced out for employers by a raise in Employment Allowance and a drop in Corporation Tax.
The Insurance Premium Tax rate is scheduled to rise in November 2015, so now is a good time to consider whether your business will be affected by the changes, and make plans accordingly.