Is there VAT on insurance?

No. UK insurance is exempt from VAT, so a car, van, home or business policy carries no VAT charge (HMRC VAT Notice 701/36). Instead, most premiums include Insurance Premium Tax (IPT), which is usually built into the price you pay (GOV.UK).

The standard IPT rate is 12%. A higher rate of 20% applies to travel insurance and to some cover sold by vehicle or appliance suppliers. Life insurance and income protection carry no IPT at all.

What is Insurance Premium Tax and how is it different from VAT?

IPT is a tax on general insurance premiums that insurers collect and pay to HMRC (HMRC IPT guide for insurers). Most confusion about VAT on insurance comes from mixing the two up. HMRC describes them as very different taxes, and the gap matters most if you run a business.

VAT-registered firms can normally reclaim the VAT they pay on business costs. IPT works differently: HMRC states that, unlike VAT, IPT cannot be recovered (VAT Notice 701/36, section 2.1).

	VAT	Insurance Premium Tax
Charged on insurance premiums?	No, insurance is exempt	Yes, unless the cover is exempt
Main rates	Not applicable to premiums	12% standard, 20% higher
Paid to HMRC by	VAT-registered businesses	Insurers (and some intermediaries on higher-rate fees)
Can a VAT-registered business reclaim it?	Normally yes, on business costs	No

Which IPT rate applies to your policy?

Most everyday policies pay the 12% standard rate, which has applied since 1 June 2017 (HMRC IPT rates). Before that the standard rate was 10%, and the higher rate has stayed at 20% since January 2011.

Type of cover	IPT rate	What HMRC says
Car, home and pet insurance	12%	Standard rate on most types of insurance
Van insurance (ordinary motor policy)	12%	Ordinary motor insurance stays at the standard rate
Business cover such as public liability	12%	Taxable at the standard rate unless an exemption applies
Travel insurance	20%	All taxable travel insurance since 1 August 1998
Cover arranged by a car hire firm or vehicle supplier	20%	Higher rate, except ordinary motor insurance sold by dealers
Appliance cover sold by the retailer	20%	Higher rate for electrical or mechanical domestic appliances
Life insurance and income protection	None	Exempt from IPT

The rules for each line come from HMRC Notice IPT1 (sections 2, 5, 6 and 9) and the GOV.UK IPT summary.

How much of your premium is tax?

Because IPT is already inside the price, HMRC uses a “tax fraction” to work out the tax portion. At 12% the fraction is 3/28, so roughly 10.7% of the total you pay is IPT. At 20% it is 1/6, or about 16.7% (Notice IPT1, paragraph 12.8).

Is there VAT on van insurance?

No. A van policy carries no VAT, but it does include IPT at the standard 12% rate when you buy ordinary motor cover. For IPT purposes HMRC counts small vans as motor cars, so a policy sold by a van dealer or hire firm can follow the car rules.

If you use the van for work, the premium is still worth recording. GOV.UK lists vehicle insurance and breakdown cover as allowable expenses for the self-employed (GOV.UK). If the van is also used privately, you can only claim the business share.

Not sure your current cover matches how you use the van? Our page on business van insurance explains the classes of use, and the guide to whether van insurance covers tools covers the kit inside it.

Do you pay VAT on business insurance?

No. Business policies such as public liability cover, employers’ liability and professional indemnity are VAT exempt, like any other insurance. They normally carry IPT at 12% instead.

The premium is usually a deductible cost even though you cannot reclaim the tax inside it. Sole traders can claim insurance as a financial cost, and limited companies deduct running costs before Corporation Tax (GOV.UK).

A worked example: a VAT-registered plumber

Priya is a sole trader plumber registered for VAT. At renewal she pays for her van policy and her public liability cover, and spots that neither schedule shows a VAT line. Her accountant books both premiums as business costs, with nothing to put through her VAT return as input tax.

Months later her van is damaged on a job and the garage repair invoice includes VAT. Because the claim relates to her VAT-registered business, the insurer normally pays the net amount, less her excess. Priya then reclaims the VAT on the repair through her own VAT return, subject to the normal rules (VAT Notice 701/36, paragraph 5.1.1).

What can a VAT-registered business reclaim on insurance?

You cannot reclaim IPT, but VAT on goods and services linked to a business claim can usually be recovered. Use this checklist when you deal with premiums and claims:

• Premiums: record them as a business cost. There is no VAT to reclaim, and IPT is not recoverable.
• Claim repairs: if the repairer invoices you, reclaim the VAT through your return. Expect the insurer to settle the net figure.
• Mixed use: where a vehicle or policy covers private use too, only the business share counts as an expense.
• Unclear invoices: if a document shows VAT next to a fee, ask the broker or insurer what the fee is for.
• Your accountant: check anything unusual with them or HMRC, as tax treatment depends on your circumstances.

Can any charges linked to insurance include VAT?

Sometimes, yes. Brokers and agents who arrange insurance as an intermediary make VAT-exempt supplies, so their arranging fees normally carry no VAT (VAT Notice 701/36, section 8.1). Services that are not insurance can be different.

• A warranty sold by the manufacturer or retailer of the goods is very unlikely to count as insurance, so normal VAT rules can apply to it.
• Breakdown cover from a motoring organisation includes an insurance element, and that element carries IPT (Notice IPT1, paragraph 4.7).
• A retailer that sells cover alongside goods has to set out the premium and any extra fee in writing, among other conditions, for that fee to be VAT exempt.

If you are comparing breakdown cover or a warranty, check the price breakdown or ask the provider which tax applies.

Questions people ask about VAT and insurance

Is insurance VAT exempt or zero rated?

Insurance is VAT exempt, not zero rated. That means no VAT is charged on the premium, and insurers normally cannot recover the VAT on the costs of providing that cover, according to HMRC VAT Notice 701/36.

Is there VAT on car insurance?

No. Car insurance is exempt from VAT. Your premium usually includes Insurance Premium Tax at the standard 12% rate instead, which GOV.UK says covers car, pet and home insurance.

Can I claim back Insurance Premium Tax on business insurance?

No. HMRC states that IPT cannot be recovered, even by a VAT-registered business. You can usually treat the whole premium, tax included, as a business cost when you work out your taxable profit.

What to do next

Any quote you get will usually have IPT built in already, so you can compare prices like for like. Tiger.co.uk lets you compare van insurance quotes from UK insurers in one go, and you can also start a business insurance quote.

Prices and cover vary between insurers, so read the policy wording before you buy. You can find more on van cover, business insurance, car insurance and travel insurance on Tiger.co.uk.