Insurtech UK urges Government to exercise budget caution
Insurtech UK has strongly advised the UK Government's chancellor, Rishi Sunak, to exercise caution in his plans to raise Insurance Premium Tax (IPT) at the current Budget.
The representative organisation, which raised concerns with both HM Treasury and HM Revenue & Customs (HMRC) say a "fairer" VAT regime would help insurtechs scale faster – and would then contribute more to the economy – encouraging further investment.
Insurtech UK's co-chairs James York and Luisa Barile said in a joint statement, "There are reports that the Chancellor may be considering a rise in IPT (Insurance Premium Tax) at this Budget, as part of an initial plan of tax rises to help rebuild the public finances due to COVID-19. We would firstly urge caution in that matter at a time when the entire economy needs some breathing space to get back on its feet."
They went on to say that such a move would hinder the recovery of the insurance sector following the damage wrought to the market by the COVID-19 lockdowns.
"This would only add an additional cost burden to customers. However, if action is taken, then we call upon the Chancellor to end the anomaly within the tax regime facing insurtech intermediaries in the UK, where they cannot reclaim any VAT (value-added tax) on incurred costs."
Growing insurtech market
The fintech and insurtech industry has enjoyed a period of growth in the UK in recent years. The insurtech sector also attracted more than £1.6bn in investment funding scince 2015.
Insurtech UK says greater investment would have certainly been achieved had the tax system been more favourable. The representative body also said that other tech sectors are not subject to the same VAT legislation.
"As technology-intensive businesses, a larger proportion of costs for insurtechs are liable for VAT, acting as a disincentive for investors," the co-chairs pointed out.
"While the insurtech sector has seen considerable growth in the UK in recent years (even though the pandemic), VAT costs undoubtedly holds it back.
"This is something that Insurtech UK has consistently raised with HM Treasury and HMRC over the past 18 months. An end to this regime would allow the sector to grow faster, bringing wider benefits to both consumers and the broader economy."
Insurtech UK added that it is appealing to HM Treasury to examine how new freedoms outside of the European Union can facilitate a "more innovation-friendly landscape" for insurtech intermediaries.
The statement continued, "We believe resolving the current VAT issue would be in line with HM Treasury's stated objective of promoting a 'vibrant, innovative, and internationally competitive insurance sector' as well as aligning with PRA's (Prudential Regulation Authority) goal of 'promoting developments in driving further digital insurance and innovation."