The IPT Tribunal has ruled that an administration fee payable to Homeserve GB Limited (Homeserve), an FSA authorised insurance intermediary, is subject to IPT, notwithstanding that the fee was payable under an administration contract which was separate from the insurance policy.
In this particular case, Homeserve arranged insurance contracts underwritten by Partner Assistance SA (PA). A contract was entered between PA and the policyholder under which the policyholder paid the insurance premium. This premium was subject to IPT. In addition, a second contract was entered between Homeserve and the policyholder under which the policyholder paid an administration fee to Homeserve for organising the insurance.
This arrangement purported to take advantage of an IPT exemption, which states that amounts received under a contract other than the main insurance contract are not subject to IPT.
The IPT Tribunal ruled that, despite the fact that this arrangement had been structured specifically to fit within the exemption, IPT applied to the administration fee paid to Homeserve because the contracts were not separate. The reason given for this was that the initial price quoted to the policyholder included both the administration fee and the premium, and that the ability to cancel the contract within 28 days and obtain a full refund applied to both amounts.
This decision calls into question what exactly constitutes a "separate contract". In this case, the parties made a clear attempt to distinguish the two contracts (which were between different parties), yet the tribunal ruled in favour of HM Revenue & Customs, demonstrating the growing trend of such tribunals looking beyond the strict wording used in a contract. This decision will particularly affect insurance intermediaries as it seems that they will no longer be able to charge an administration fee for arranging a contract of insurance without the fee being subject to IPT