What is Insurance Premium Tax and why is it so important?

Insurance Premium TaxInsurance Premium Tax (IPT) is a form of compulsory tax that applies to all forms of insurance.

Value Added Tax (VAT) does not apply to insurance policies, instead the Government requires Insurance Premium Tax.

It is a government requirement that the Insurance Premium Tax must be applied to the price you are originally quoted. That is why you hear the Gap Insurance adviser say “your policy will cost £100 inclusive of Insurance Premium Tax”. The same applies to VAT, when you are buying a coffee from Starbucks, the price you pay will include VAT (well, maybe not in Starbucks case!).

The rate of Insurance Premium Tax for online Gap Insurance providers is 6% of the original insurance premium.

The average Joe blog customer who contacts us has previously been quoted a price for Gap Insurance by their local dealership. The average price for a Gap Insurance dealership is £395. However when Joe Blog is informed that the average online Gap Insurer is £95, they are often left confused and ask why is the a enormous price difference?

The most significant factor why is because the rate of Insurance Premium Tax that applies to a dealership and an online provider.

Dealerships have to pay 20% Insurance Premium Tax, compared to online providers who have to pay 6%.

There are other factors which contribute to the price difference, they can be read here.

For a low cost quote Gap Insurance for your Motorbike, please click here.


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