Companies self-insuring to avoid insurance tax

In the Autumn Statement in 2016, chancellor Philip Hammond said the UK's insurance premium tax was one of the lowest in Europe - so he was raising it.

At the time, Mr Hammond said: "Insurance premium tax (IPT) in this country is lower than in many other European countries, and half the rate of VAT.

"In order to raise revenue, which is required to fund spending commitments I am making today, it will rise from 10 per cent currently, to 12 per cent from next June [June 2017]."

When the new wave of hikes takes place, this will make the UK's IPT the third most expensive in Europe.

However, some companies can avoid IPT on their workplace protection policies by creating a corporate healthcare trust. This is enabling them to, in effect, self-insure for medical cover for their staff.

Most employers will reduce costs through skilful negotiation with their brokers accompanied by precise tailoring of the insurance plan to the needs of the workforce. George Bull

Sue Moore, technical manager at the Institute of Chartered Accountants in England and Wales, said: "It seems that some companies are now in effect self-insuring for medical cover for their staff. As it is not an insurance policy there is no IPT."

However, George Bull, senior tax partner for RSM UK, said judging by tax comparison tables, it seems the corporate healthcare trust "continues to be more expensive than the corporate deductible route".

He commented: "I do not have first-hand experience of corporate healthcare trusts but whether the employer company has the financial resources to meet an unforeseen and significant claim is of course a question which would have to be addressed by any company looking at structures such as this.

"It's also worth remembering that most employers will reduce costs through skilful negotiation with their brokers accompanied by precise tailoring of the insurance plan to the needs of the workforce."

This comes, Mr Bull added, as many employers are pursuing "vigorous campaigns to raise health awareness among their workforces and to take specific steps to help employees improve and maintain their health".

Indeed, in November 2016, the Department for Work and Pensions and the Department of Health issued a joint Green Paper on ways to encourage the take-up of group medical insurance in the workplace.

This document came out less than two weeks before Mr Hammond announced the IPT hike.

simoney.kyriakou@ft.com