I heard through the grapevine financial advisers are to be charged an Insurance Premium Tax (IPT) every time they sign up a new customer to an insurance policy. That is what the government has apparently been touting in a whitepaper. There is no doubt HMRC will get it through parliament before too long. Naturally, every self-respecting insurance broker is up in arms demanding to know what they have done to upset the government. The problem as far as I can make out is that HMRC is saying any fees paid by customers to a broker for their services should be liable for IPT. Various groups of knowledgeable people are scurrying around holding meetings trying to determine how the new tax will be applied. Everyone seems to agree that it is a punitive measure designed to stop brokers from doing dodgy deals –like Homeserve, who charged one fee for admin and another for the contract so they could avoid paying VAT on their admin fees.
Like any other consumer, I want to know how much I am going to be paying my broker in fees when he sells me a policy. It seems HMRC want IFA fees to be transparent and uncomplicated. Well then, what is the fuss all about? Critics say, the imposition of a single IPT charge on contracts will mean IFAs and insurers are going to raise their fees. They point out the new rules demand insurers should be made accountable for the way brokers charge their customers fees. HMRC want them to know a lot more about their IFAs customers and expect them to collect the IPT from their brokers. In future it will mean insurers will have to keep records of the business done by their brokers. These changes are obviously going to complicate the relationship between the insurer and the broker, as it takes away much of the independence brokers have to run their own business.
The new rules complicate matters between brokers and insurers because it threatens to take away the management of customer relations from the broker and places it firmly on the shoulders of the insurer. Blurring the lines of responsibility in an industry where insurers compete directly for business with brokers is not only going to undermine the independence of the broker, it will also damage the all important broker- client confidentially agreement. Savvy customers are going to wonder whether it is worth going to a broker, who charges extra for their services when they could go directly to the organ grinder (the insurer) and pay less in fees when they buy a policy. All this regulation seems a bit extreme when it only amounts to a measly additional £10 million in tax revenues.
Brokers have to hope few customers are going to be up on all the machinations of this new HMRC ruling and ignore the small print. From now on they shall have to trust a competitor with their client list. It is no surprise these changes are making IFAs nervous. It could spell the end of the independent financial adviser. Since it is very unlikely brokers will be able to hang on to their customers when a competitor is able to get their hands on their client files. Brokers can be thankful, HMRC have generously said mid term adjustments and policy cancellations are not liable for IPT. Plugging a loop hole in the tax system is a good thing. But I am not so sure taking away the independence of the broker is a going to be good for consumers.
I cannot imagine it was the intention of HMRC to dent the independence of the broker. The new Bill needs to be carefully thought through if the independent financial consultant is to stay in business. Homeserve lost their case to keep all their charges free of tax. So, why change the current system to a more complicated and confusing set of regulations? The responsibility for collecting and paying the contract fee should be left in the hands of the broker. Then if anything goes wrong HMRC will know who to prosecute. That would be the sensible way to collect IPT.
