Insurance · 27 February 2017

IPT hike could encourage cowboy builders and punish honest firms

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The tax rate on insurance cover is set to rise to 12 per cent in June 2017

Increases to the insurance premium tax (IPT) could lead to a surge in cowboy builders and undermine small construction firms that properly manage risks, industry bodies have warned.

IPT is the tax placed on insurance quotes in the absence of VAT, and is set to rise from ten per cent to 12 per cent on 1 June 2017 – the third increase in the past 18 months.

Experts at the Federation of Master Builders (FMB) and the Association of British Insurers (ABI) have issued a joint statement to the chancellor ahead of the Spring Budget warning of the potential damage to small construction businesses.

Brian Berry, chief executive of the FMB, explained that growing costs could tempt homeowners towards uninsured builders offering more competitive rates.

“The doubling of IPT over the past two years has troubling implications for construction SMEs and home owners alike. This stealth tax effectively provides an additional competitive advantage to unscrupulous and uninsured builders,” Berry said in a statement.

“By driving up the costs of insurance, it punishes those businesses that play by the rules and make sure that they are always covered.”

Berry added that the IPT rise could discourage clients from taking out warranty on building projects and encourage poor and potentially dangerous practices in the UK’s construction industry.

The ABI’s director of insurance policy, James Dalton, said that small business owners were already operating on “very tight margins” in the sector, and with growing domestic costs and rising business rates the IPT rise represented an unwanted “tax on businesses”.

He said: “Unlike VAT, no element of IPT can be reclaimed by [business owners], meaning they will have to absorb these extra costs – this could cost jobs, drive up prices or companies may decide to reduce their insurance cover, putting them at risk if something goes wrong. Enough is enough, give firms a break and freeze IPT.”

Dalton added that added insurance costs were “the last thing” owners at Britain’s small construction firms needed in uncertain economic times.

The organisations expressed a fear that Philip Hammond would announce a further increase in the upcoming budget, and Berry concluded that it was “vital” that no more hikes would be outlined before 2020.

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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