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Friday, 18 February 2011

All or nothing on tax

Is it right to impose a tax on insurance premiums? Is that not just penalising the prudent?

The UK government doesn't think so, because it put Insurance Premium Tax up from five to six per cent last month. The Chancellor of the Exchequer said it could have been worse, and he should know.

The insurance team at Moore Stephens wrote about tax recently in its Devil's Dictionary newsletter column. Here is what it had to say.

Contrary to what the term implies, being zero-rated is a good thing, unless you are competing on X Factor. It always pays to engage immediately in anything zero-rated.

The real winners are those who take out a range of insurance policies, get their top set fixed at the dentist and enrol for back-to-back evening classes all on the same day. The Revenue can’t touch you for VAT.

Other zero-rated items in the UK include snake-belts and some forms of oxygen. But there is a catch.

In 1994, the government invented Insurance Premium Tax, which is the same as VAT except it doesn’t apply to international railway rolling stock. This is lucky.

If you and your three brothers each provide one-fourth of your mother’s total support, and one of you owns rolling stock, you can register as zero-rated. If you own a lifeboat, claim twice.

Beware, also, new EU rules on the reverse charge mechanism whereby importers must account for output tax on their VAT returns but can recover it on the same form, minus room tax.

The effect is to do away with zero-related items altogether, thus confirming the old Revenue adage, “If it moves, tax it; if it doesn’t move, paint it first and then tax it.”

Jaffa cakes are cakes and not biscuits, and are therefore zero-rated.


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