Chapter IPT04910
| Published date | 15 April 2016 |
| Record Number | IPT04910 |
Paragraph 2(6) of Schedule 6A, inserted by the Finance Act 1997, states:
In this paragraph “motor car” and “motor cycle” have the meaning given
(a) by section 185(1) of the Road Traffic Act 1988 or
(b) in Northern Ireland, by Article 3(1) of the Road Traffic (Northern Ireland) Order 1995.
This effectively covers cars, motorcycles and light vans. Insurance relating to such vehicles is liable to the higher rate when sold in the circumstances described in IPT04916. Motor breakdown insurance, roadside assistance insurance, legal expenses insurance, MOT insurance and “parts” insurance (such as cover for tyres) relate to a motor vehicle and are liable to the higher rate of IPT when provided in these circumstances. Personal accident insurance which covers the insured in connection with a motor vehicle, for example whilst driving or whilst getting in or out of a vehicle, will also be liable to the higher rate of IPT when sold in these circumstances.
“Ordinary” motor insurance sold by motor dealers is not liable to the higher rate of IPT. However if you discover examples of such motor insurance being used in a VAT avoidance scheme you should contact the UoE or Deductions & Financial Services Team (see IPT08100). “Ordinary” motor insurance is the type generally known as fully comprehensive; third party fire and theft; or, third party.
Where a policy for ordinary motor insurance contains an ancillary element of insurance which is liable to the higher rate when sold by a car dealer (for example, motor breakdown insurance), the ancillary element is not liable to the higher rate. What is “ancillary” is a matter for local officers’ judgment (to give percentage guidelines could lead to manipulation) but if you are in any doubt you should contact the UoE or Deductions & Financial Services Team.
“Ordinary” motor insurance arranged by car hire/rental businesses in connection with a motor vehicle on hire is liable to IPT at the higher rate.
For this purpose, the term hire includes short and long term hire, rental and leasing (but not where the “leasing” consists of the supply of a vehicle under a finance lease agreement or a hire purchase agreement).
Guaranteed Asset Protection (GAP) InsuranceCredit Protection or Financial GAP insurance is designed to cover any shortfall from the proceeds of a comprehensive motor policy should a vehicle, purchased on finance, be written off. A typical example, linked to a financial agreement, might work as follows.
- A vehicle is...
To continue reading
Request your trial