Written evidence submitted by the Association of British Insurers


Executive summary


  1. The Association of British Insurers is the voice of the UK’s world-leading insurance and long-term savings industry and we welcome the opportunity to respond to the Treasury Select Committee’s inquiry into Taxation after Coronavirus.


  1. COVID-19 has brought an unprecedented economic contraction, with the UK economy seeing the steepest Q2 decline in GDP (20.4%) of any major economy.[1] At the same time, initial industry estimates indicate that UK insurers are set to pay-out in excess of £1.7billion on COVID-19 related claims.


  1. In May 2020, the insurance and long-term savings industry launched the Covid-19 Support Fund in order to help those who had been hardest hit by the crisis. In just a few months, £83.9 million has been pledged in voluntary contributions from 38 firms across the sector and is one of the largest donations from any sector to support charities.


  1. The UK Government was elected on a manifesto which committed to ‘level-up’ the regions of the UK, a challenge made all the more acute post-Coronavirus. As institutional investors, both locally and nationally, the UK insurance and long-term savings industry – which pays over £12 billion in UK taxes - can play a key role in achieving this aim. The sector employs over 300,000 people, two-thirds of which are employed outside London, as well as being a major institutional investor, managing investments over £1.7 trillion.


  1. The sector is an exporting success story: Britain is the world’s leading exporter of insurance, with £19.6 billion of insurance and pension services sold to the rest of the world in 2018.The UK is also now four months away from a structural change in its trading relationships with its largest trading partner given the EU exit ‘transition’ period ends at the end of 2020. Much groundwork has already been done in structuring groups to mitigate the loss of ‘passporting’ and minimise the effects on their ability to continue business across Europe. However, the EU exit is likely to impact insurers with international operations in ways which, like the impact on other service sectors, have not attracted much public attention.


  1. The UK tax regime is one of the most complicated in the world which causes significant issues for large corporations and individuals alike. This was demonstrated during the 2019 General Election campaign when the pension tax annual allowance became a headline issue given its impact on NHS doctors. The insurance and long-term savings industry must give careful consideration to the tax regime applicable to individuals when designing products from motor premiums through to pension saving. The industry would welcome simplification as part of a holistic approach to tax reform, supporting long-term economic objectives.


  1. There are two particular areas of taxation which specifically affect the insurance and long-term savings sector and its products and merit serious reflection in the post Coronavirus context: Insurance Premium Tax (IPT) and Pensions Tax Relief. IPT is a regressive tax which has been doubled over a five-year period, hitting the poorest hardest. Pension Tax Relief is unequally distributed, not just between higher and lower earners, but also between types of scheme; the long-term savings industry has long stated that any reform should be holistic, rather than continual piecemeal change.


  1. As the Government wrestles with the multi-faceted challenge of restoring the public finances in the wake of Covid-19 and in the face of growing societal challenges such as our ageing population, any substantial changes to the tax system will be most effectively implemented through consultation with industry and supported by a clear roadmap of the changes ahead.


What are the major long-term pressures on the tax system in the UK, including those arising from changes in working practices, demographics, the environment and other factors? How are these affecting the efficiency of the tax base and the overall level of demand for public services?


  1. The reality of the UK’s ageing society including paying for retirement and funding long-term care represent significant potential challenges for Government in terms of tax raising, incentivisation and reliefs. As the disruption of Covid-19 works through, there are likely to be impacts on the trajectory of automatic enrolment and on costs in the care sector, both of which will have a read across to the supporting tax framework.


  1. The insurance and long-term savings industry has to consider the impact of the tax regime applicable to individuals when designing products. This ranges from PAYE income tax consequences on pension contributions and pay-outs, inheritance tax charges on protection policies and regressive taxes such as IPT on general insurance premiums.


  1. Insurance and long-term savings is a highly regulated industry. The regulation extends from prescriptively identifying minimum capital requirements to providing detailed information in an accessible format to individual policyholders. Long-term savings products regulation also has a key focus of providing good customer outcomes. Where tax rules change from tinkering to major reform, the impacts on policyholders need to be carefully considered to avoid unintended consequences and disincentivising both insurance against adverse events and saving for the long term.


  1. The insurance and long-term savings sector is particularly susceptible to the complexity of the UK tax system for a number of structural and commercial reasons. The sector is affected by all the usual issues that impact large corporate organisations. Compliance across employee taxation, corporate taxes and indirect taxes is onerous and unnecessarily time consuming and costly. In addition, the relative size of balance sheets and income statements due to the nature of the industry, mean that insurance groups are more likely to be within scope of the plethora of compliance and reporting regimes applicable to large businesses such as Senior Accounting Officer (SAO), Tax Strategy publication, Country-by-Country reporting than other groups with a similar employee headcount.


  1. In tax-specific aspects, UK VAT is governed by EU rules on the place of supply, among other things, and the location of risk for Insurance Premium Tax (IPT) is determined by reference to EU caselaw and legislation. It is not yet entirely clear how such principles will change in 2021, and how UK law will interact with EU law (although much uncertainty remains concerning the departure from the EU more generally). This is likely to mean significant system changes for many insurers and – as in a number of other areas of regulation, such as DAC6 (mandatory disclosure of cross-border transactions) – with relatively little notice or detail.


What more can the UK do to protect its tax base from erosion as a result of globalisation and technological change, and what further impacts will the coronavirus pandemic have on our tax base?

  1. Insurance and long-term savings groups operate on a global basis, in order to ensure diversification of risk and capital efficiency. It requires the flexibility of operations in key locations around the world and cross-border transactions in order to provide the necessary insurance cover that both individual consumers and businesses require. There are many factors that contribute to this structure including the availability of underwriting expertise in order to price risks appropriately, the support of international capital providing capacity for local insurance companies to accept risks they would not otherwise be able to and robust local regulatory requirements providing comfort to stakeholders including policyholders and ratings agencies.


  1. When looking at base erosion, there is a perception from some that cross-border transactions are largely undertaken for tax purposes. We cannot stress strongly enough that the vast majority of cross-border transactions are undertaken for purely commercial purposes. There is already copious general and specific anti-avoidance legislation in place to deny a benefit where there is a tax-motivation to transactions.


  1. In terms of what the UK needs to do protect its tax base from erosion, the best solution is to have multinational agreement, co-ordinated through the OECD inclusive framework. However, there is a danger that proposals become immensely complex and unwieldy, creating a costly compliance burden. Informed opinion suggests that the Pillar 2 (minimum rate of tax) proposals could require tracking of numerous different carry forwards to allow for temporary differences between tax and accounting results. Insurers typically have much larger temporary differences than most industries (due to tax and regulatory requirements) and this could therefore result in double taxation where carry forwards do not unwind over time. Care will need to be taken that the UK corporate tax rules work appropriately under OECD proposals for both current state and any proposed UK tax changes to avoid punitive double taxation arising.


  1. We have significant concerns about current OECD proposals. However, if the OECD cannot broker international consensus, there is a real danger of a significantly worse outcome arising from the proliferation of national and regional (EU) revenue-based taxes, all with different rules and regulations. This would likely lead to double (or more) taxation, and as can be seen with recent Amazon price rises, are inevitably borne by the end consumer rather than the corporate institutions that are nominally being targeted.


What overall level of taxation can the economy bear without undesirable or counterproductive harm to economic growth?


  1. Before answering this question, it is important to differentiate between different types of tax and reliefs that are offered. Regressive forms of tax that hit the poorest hardest should be discouraged, particularly where they hit socially beneficial measures. Similarly, tax systems that encourage long-term savings by deferring taxation result in more economic growth than those that offer immediate taxation.


  1. Taxes on corporates may appear on the surface to be a soft target. However, in an Internationally competitive environment, having a competitive tax system is key to the role of the UK as a hub for inward investment and as headquarter location for multi-national groups. The headline corporation tax rate is integral to this, but is not the only factor, particularly in view of the broadening of the base. The overall impact of taxation, including the total contribution from all taxes and the cost of compliance (and reputational and financial penalties where errors are made) are equally important.


  1. It is also important when looking at the level of taxation to provide the Government with effective levers to change rates and amounts to increase or decrease the tax burden without requiring fundamental reform or complex transitional measures. For example, changing income tax bands or rates is relatively simple to do prospectively. However, reducing the Pensions Lifetime Allowance requires transitional provisions (e.g. Fixed protections), with resulting disproportionate tax outcomes resulting from apparently innocuous activity, such as making a payment into a pension and losing protection. Outcomes can be so disproportionate that the courts do not accept them.[2]


  1. Insurance Premium Tax is a regressive form of taxation. The lowest post-tax income decile of households, spent 4.1% of their disposable income directly on insurance (except life insurance), compared with 1.6% for the highest income 10% of households. (This is based on analysis of ONS Family Spending data covering the fiscal year ending 2018.) 
  2. Targeting specific taxes at the insurance industry such as IPT causes insurance to become more costly and take-up to reduce – particularly for those who most need it and could rely on state support should things go wrong. Increasing tax burdens on the insurance sector therefore can lead to increased Government spending.


  1. The UK has had the 6th highest rate of Insurance Premium Tax in Europe since the standard rate was increased three times between November 2015 and June 2017, from 6% to 12%. IPT applies to the vast majority of policies sold, whether for property, motor, health, pet or business insurance, and costs each household £200 on average annually, when its knock-on effects are taken into account[3]. The IPT rate has increased, despite the socially beneficial outcomes that arise when insurance coverage is provided, from reduced NHS costs where private medical treatment is taken, to helping people recover from floods rather than relying on state support. The Centre for Economic and Business Research (CEBR) calculated 200,000 people moved away from health insurance and into NHS care as a result of the three IPT increases in the eighteen months between late 2015 and mid-2017.[4]


  1. IPT is often claimed by the Government to be a tax on insurers rather than a tax on policyholders, a statement not supported by the wording of IPT legislation and HMRC public guidance. In reality it is a tax on premiums, and as with many other sales and transactional taxes such as VAT or air passenger duty, it is the end customer who bears the economic burden of paying for it. Indeed, IPT will often be disclosed separately on invoices to emphasise the tax being charged to the individual or business, and the ABI has encouraged this practice among its members in the interests of customer awareness.


  1. IPT now raises more revenue than beer & cider duty or wine duty or spirits duty or betting & gaming duties. Since 1994 the standard rate of IPT has increased more rapidly than tobacco duty. Such large hikes in IPT have taken place despite a lack of published evidence from government around its impact on consumer behaviour and household finances, including with respect to the distributional consequences of changes in IPT.


  1. If the standard rate of IPT had remained at 5%, its rate prior to 2011, then the savings per UK household could be significant. For the fiscal year, 2019/20, we estimate that households are directly paying about £58 per year more as a result of higher IPT[5]. If the business costs associated with higher IPT are ultimately borne by households (either through higher prices or lower incomes/dividends), then the additional cost per household could be as high as £123. Cumulatively, over the five years 2019/20 to 2023/24 inclusive, these costs are approximately £607 – some £17.1bn across all households. This comes on top of the £428 cumulative extra costs faced per household between 2010/11 and 2018/19 inclusive, compared with the standard rate of IPT remaining at 5%.  This amounts to £11.6bn across all households.


  1. Given the burden IPT poses on those who are often most in need of insurance protection, we believe a further rise in IPT in the current environment would be detrimental to the level of insurance cover in the market. Any measures, such as IPT changes, that impact the insurance sector specifically therefore need to be carefully thought through to ensure that the impact on individuals and business is clearly understood. In addition, Insurers incur high costs when implementing IPT rate changes which increases dramatically when coupled with complex transitional rules to manage.


What is the role of tax reliefs in rebuilding the economy and promoting economic growth and efficiency? Does the current regime of tax reliefs perform this role well?


  1. Taxation and tax reliefs can be valuable tools to drive behaviour and deliver beneficial outcomes to society as well as to raise revenue for the Exchequer. From ESG taxation bases to levelling up in deprived areas, taxes can be used as a key lever of reform for the benefit of the wider public.


  1. However, what is clear is that more information is required about the effectiveness of the current UK tax regime. The recent Public Accounts Committee review of tax reliefs highlighted the lack of information that HMRC has available around the use of tax reliefs, particularly the largest ones[6]. Any tax proposals need to be evaluated by looking at the impact upon society as a whole, and without knowing the current position, evaluating the impact of any change is virtually impossible.


Pensions tax relief


  1. One of the largest, but most vital reliefs, is pensions tax relief. Its role is twofold: as an incentive to save for retirement and a subsidy to help people to achieve adequate savings in retirement.


  1. This is more important now than ever. Responsibility for retirement provision has fundamentally shifted. Generous defined benefit (“final salary”) employer pension schemes used to absorb investment and longevity risk for workers. But the shift to defined contribution workplace pensions, in effect individual savings pots, means that more risks remain with individuals. As a result, people need to be encouraged and supported to save for the long term. Encouraging retirement savings adequacy will also ease the burden on the state in the long run.


  1. We note that the committee has already heard evidence stressing that the current health and social care and pensions situation is not sustainable, and presents a choice of substantial tax rises, reduced provision or the population contributing more.[7]  There is a real danger that short term measures affecting pensions are taken to improve both the Exchequer cash flow and cash within the economy that could cause major long-term damage to sustainable saving and would erode the future tax base. In the context of the already unsustainable situation for health and social care / pensions as noted above, this would potentially be extremely damaging both financially and socially in the medium to long-term. 


  1. Pension tax relief is also good value for money because the capital accumulation it generates in the economy is much higher than the value of the relief. Finally, the tax is deferred, not simply foregone, as savers with larger pension pots will pay more income tax in future. The National Institute for Economic and Social Research’s (NIESR) analysis has also shown that this so-called Exempt-Exempt-Taxed “EET” model, unlike the ISA-model contemplated in 2015 (Taxed-Exempt-Exempt or TEE), is better for GDP and productivity. It also notes that “Shifting from EET to TEE front-loads the income tax burden, away from retirees and especially onto younger working aged agents, taking income away from younger agents just at the point when their budget constraint is tightest”[8]


  1. The distribution of pension tax relief is uneven. According to research commissioned by the ABI, in 2018, around £9.3bn of income tax was relieved in respect of Defined Contribution pensions, representing just 17.5% of the total £53bn of pensions tax relief, showing that the lion’s share of pension tax relief accrues to Defined Benefit pension scheme members, many in the public sector. Since the implementation of auto-enrolment, the proportion of pension tax relief going to those earning less than £30,000 has only increased from 23% to 24%, despite the proportion of claimants increasing from 52% to 63%[9]. Clearly, Automatic Enrolment policy has not only been successful in encouraging a greater proportion of people to save (especially into DC pensions), but also in providing value for money for the Government. However, this does highlight that the cost of pensions tax relief predominantly comes from DB pension benefits.


  1. The ABI has long called for simplification of the pensions tax relief system. Years of tinkering by successive governments have led to a system that is convoluted and inconsistent in its principles. Relief is in place to encourage savings, but allowances like the Lifetime allowance and the Money Purchase Annual Allowance penalise those doing the right thing. It is also enlightening to consider who receives the bulk of the relief because it reflects the tax system. Despite basic rate taxpayers accounting for 83.4%[10] of total taxpayers, only 26% of DC pension tax relief is associated with them[11]. This distortion can also be seen by gender. Presently, 71% of the relief is granted to men, as they also make up the majority of high-rate taxpayers, not least as a result of the gender pay gap. Many non-taxpayers, disproportionately women, do not receive any tax relief if their employer chose a net pay arrangement rather than a relief at source arrangement. We welcome the Government’s call for evidence to address this and would encourage further simplifying measures such as removal of the MPAA.


  1. Changing the system of pensions tax relief may lead to a more equitable distribution of the relief. It is key that any change to pensions tax relief should have the aim of broadly equivalent outcomes for savers in DB schemes and DC schemes. It is essential that any reform to pensions tax relief is done in collaborative consultation with industry. This would help avoid harmful unintended consequences which might arise as a result of the intersectionality of this relief and other taxes (for instance capital gains tax and inheritance tax), or knock-on impacts to other markets, such as group income protection.




What are the areas for simplification?

  1. As outlined previously, the UK tax regime is highly complex, and there are a number of areas to highlight where simplification would be beneficial. Simplification  needs to be well thought through as part of a package of measures that align with long-term objectives.


  1. The UK needs to have a competitive and business focussed tax-regime to attract investment in the post-Brexit environment. From a tax perspective, this does not mean simply lowering headline rates, rather the overall cost-benefit analysis of doing business in the UK. Gold-plating tax regulations, as has been seen with the UK implementation of International tax rules such as the BEPS corporate interest restriction disincentivises businesses from investing in the UK. (The UK legislation is over 150 pages, with over 280 pages of guidance)[12].


  1. Since 2008 the UK tax legislation has more than doubled in volume. There have been numerous new taxes and reporting requirements which require analysis and impact assessment which may far exceed the actual cash tax impact upon a typical insurance / long-term savings group. Examples of new tax measures include the Annual Tax on Enveloped Dwellings, the Diverted Profits tax, the Digital Services Tax as well as numerous corporation tax changes resulting from the OECD BEPS project. In contrast, simplification measures in the insurance sector have been limited to the removal of the historic Life Assurance Premium Relief.


  1. The continual layering of additional compliance measures on business, which individually may be reasonable but cumulatively are very costly to implement includes the GAAR, FATCA/CRS, DOTAS, DASVOIT, DAC 6, SAO, DPT, CbyCr, SAO, PoTS and other acronyms whose brevity belies the effort required to ensure compliance. This is without  the proposed reporting requirement of uncertain tax treatments. This is exacerbated by the overlapping intentions of UK, EU and International initiatives with no clear medium to long-term plan to ensure risk areas are adequately covered and monitored. We also refer to our comments below about the need for a Roadmap to set out the future direction of tax reform.


  1. Continuous tinkering with taxes can have consequential, unwelcome and unintended impacts. Pensions tax relief is a critical example of where the complexity caused by continual change leads to both confusion and adverse outcomes for taxpayers, the state and the general public, as highlighted by the impact of the annual allowance on doctors. Similarly, pension payments are impacted by the differing rates of income tax which have to be applied to pension schemes – three English tax rates, five Scottish tax rates all with different brackets and more potential complexity with Wales.


  1. A further example of the complexity resulting from pensions is demonstrated in the protection world. Many group protection policies that pay out on an employee’s death to family and other beneficiaries are structured as pension arrangements. Structuring these policies without using pension arrangements provides complex inheritance tax administration requirements. However, with reductions to the pension lifetime allowance potentially impacting many more people than was originally intended, group protection policy arrangements structured through pension arrangements have become unsuitable for many. As such, recent reductions to the pension lifetime allowance mean that inheritance tax has become increasingly relevant when deciding how to structure group protection arrangements.


  1. The chargeable events regime for insurance policies is overly complicated and the amounts of tax at stake are often minimal. Although the number of new policies being sold is modest, there are large numbers of historic policies in progress which will mature in the next 10-20 years. There are significant paper-based reporting requirements which do not fit well with the modern world such as individual tax accounts on the HMRC portal. Penalties for non-compliance for minor errors are also disproportionate. This is another area that we recommend is simplified.



Is there a role for windfall taxes in the post coronavirus world?

  1. The insurance and long-term savings industry does not consider that windfall taxes are good tax policy. They do not support long-term plans and reduce confidence and trust in a taxation basis. As noted in our request above for a tax roadmap, investment decisions can only be made on a sound basis where taxation is predictable.


What is the right balance between taxation of work, savings/pensions and wealth?


  1. One approach to take to consider the balance of taxation between types of income is to step back and consider the tax rates applied and whether comparative differences are justified due to the social or fiscal benefit that results. As an example, a lower tax rate on savings could be justified if that lower tax rate was an incentive to save. A lower tax rate on investment income could be justified by incentivising people to take an investment risk they would not otherwise take.


  1. The right balance of taxation would give an outcome that did not disadvantage lower earners from doing the right thing. At present, some low-earners do not benefit from any Government incentive to save – non-taxpayers in ‘Net Pay’ schemes do not benefit from the tax relief that those in ‘Relief At Source’ schemes do. In a welcome step, HMT are consulting on this issue at the moment, however all options in the consultation provided to solve the issue have some drawbacks.


  1. As a further illustration of elements within the tax framework at the heart of the question of balance between taxation of work and wealth, the current pensions system provides both annual and lifetime allowances. For defined contribution pensions, the lifetime allowance can penalise wise investment choices. This is a classic example of a measure that appears reasonable on the surface to limit the benefit of pension tax relief but the application of it results in perverse tax outcomes and can drive poor decision making. This is clearly at odds with finding the right balance of taxation to drive optimal social policy.


  1. A recent trend in UK tax has been the reduction in headline rates; while the base of taxes has been broadened, rates on lower profile taxes such as IPT increased or new levies have been introduced in a low-profile way (so-called ‘stealth taxes’). Where the Government feels constrained by manifesto commitments around headline rates, this can lead to the wrong outcome, either because the measure is ill-targeted or as the compliance burden (on both industry and HMRC) of a whole new tax can be disproportionate to the revenue raised. Using existing taxes and levers is therefore generally preferable than introducing new ones.


  1. A current example of a new stealth tax is the economic crime levy to be imposed upon regulated institutions to finance operations against economic crime. This is a tax by another name, yet is not being badged as such by the Government.


  1. Further, we note that the Office of Tax Simplification have recently been asked to review Capital Gains Tax. Where simplification or other changes are made to that tax, care will need to be taken to understand how it interacts with other parts of the tax system (for example inheritance tax interactions and the operation of the corporate tax regime for life insurers which includes Capital Gains Tax calculations, amongst others).



What is the best way to tackle tax reform, including what changes might be needed at HMRC to support implementation, and how should the Government consult with stakeholders and parliament?


  1. The UK tax system is complex, with taxes interacting in varied and often unanticipated ways. Accurate information and industry consultation should therefore form the basis of a roadmap providing guidance on the future tax system, allowing business to plan accordingly.


  1. The insurance and long-term savings industry support a reduction in complexity of tax legislation. We have supported recent Office of Tax Simplification reports such as Taxation and Life Events[13] and will continue to support simplification proposals. We discuss further below specific areas for simplification.


  1. Key to any tax reform is that changes or new measures have a clearly articulated purpose, with quantifiable outcomes that are monitored against target ranges. Without this, there is a danger that ineffective or worse fiscally damaging changes are kept on the statute book. This builds upon and extends our comments above about the need for robust information on the cost and distribution of tax reliefs.


  1. Taxes interact with each other and often many are in point for a single issue. Long-term savings needs to consider income tax, national insurance contributions (NICs), capital gains tax treatments and inheritance tax implications amongst others, such as the impact upon an employer’s corporate tax position where relevant for pension contributions.


  1. Rushed policymaking without consultation leads to anomalous outcomes. Occasionally measures may require immediate implementation to close tax loopholes or to stop adverse behaviour before a measure comes into effect. However, other measures often have insufficient or rushed consultation without such justification.


  1. An example here is the pensions freedoms of 2015. Since they were introduced more than £600m of overpaid tax withheld under the PAYE regulations has been repaid by HMRC[14]. This results from the operation of an inappropriate tax system designed to ensure that weekly and monthly salaried employees pay approximately the correct amount of tax being applied to one-off drawdown payments. At the time pension withdrawals were introduced, they were described as being equivalent to withdrawals from a bank account, whereas this is a materially different scenario.


  1. The tax treatment of optional employee funded components to Group Income Protection policies is another example where inadequate consultation over the tax changes (of Optional Remuneration i.e. salary sacrifice arrangements) has led to HMRC asserting a bizarre tax outcome  – part of a claim would be taxable on the recipient as income and part would be non-taxable. This impacts the most vulnerable people in the position of making a claim – often as a result of suffering ill-health - and has far-reaching consequences, for instance on Universal Credit eligibility. Better consultation with industry would have ensured that this potential issue was identified and dealt with upfront.


  1. As a third example, the removal of indexation relief on corporate chargeable gains impacted millions of policyholders due to the lack of consultation on the detail of the measures with industry. The unintended consequences were severe, with claims that Parliament was misled as Treasury papers indicated that “This measure has no impact on individuals or households.[15]


  1. An important impact of tax related changes can be the cost of delivering them. FATCA/CRS reporting requirements have required massive investment by industry, which results in lower corporate profits and hence tax receipts from that source.


  1. As we note above, both reliable information regarding the current tax system and effective engagement with stakeholders including industry representatives is key. It is important also to stress that HMRC needs to understand the objectives of legislation when applying it. We comment further below on the UK approach to taxpayer compliance.


  1. Business as a whole craves consistency and predictability from the tax system. Investment decisions need to be taken with an understanding of the post-tax, rather than pre-tax, outcome. It is also important that investment decisions can take into account all taxes, be they visible such as Corporation Tax or VAT, or new levies yet to be imposed.


  1. A roadmap of how taxation is expected to evolve over the medium to long term would be very beneficial to industry and individuals alike and has been called for by others such as the CBI[16]. This enables decisions to be undertaken with an understanding of possible changes, even where the detail is understandably not known.


  1. Integral to this roadmap will be understanding of how automation and technology will play a part. Making Tax Digital is well underway for VAT, however extensions to other taxes have previously been paused and are only now being considered again.


  1. Where automated data flows are required, the full financial infrastructure of an organisation must be considered. Upgrading or replacing a full financial accounting and consolidation system is a project that can cost tens or hundreds of millions of pounds and even ‘simple’ tax rate changes with transitional rules can cost insurers hundreds of thousands of pounds to implement. As such, understanding possible requirements is essential now to enable appropriate ‘future-proofing’ to be undertaken. Where this is not possible, expensive and complex reworking may be required. This reiterates the requirement to have a clear roadmap of tax developments.


  1. The UK approach to corporate taxpayer compliance over recent years has focussed on large businesses managing their own affairs and being responsible for reporting issues to HMRC. This manifests itself through measures such as the self-assessment regime and Senior Accounting Officer (‘SAO’) certification requirements amongst many others. However, the implementation of many of these measures loses sight of the objectives. As we alluded above, it is critical that HMRC enforcement of legislation does so with the policy objective of the legislation in mind.


  1. For example, the administrative oversight of missing dormant companies off a SAO submission does not in all reality reflect a material governance failing in a multi-billion pound group. However, HMRC can consider it appropriate to issue personal fines to the relevant SAO in those circumstances.


  1. The new corporate criminal offence of facilitating tax evasion is a welcome addition to the tools available to crackdown on tax evasion. However, the blanket unlimited corporate fines that can be levied could result in disproportionate outcomes, and more measured penalty regimes would achieve the same objective of taxpayer compliance. Indeed, the impact of such penal potential measures is more likely to mean that good corporate citizens suffer, as they feel it necessary to adopt disproportionate and onerous compliance burdens to try and minimise any residual exposure.




About the ABI


The Association of British Insurers is the voice of the UK’s world-leading insurance and long-term savings industry. A productive, inclusive and thriving sector, our industry is helping Britain thrive with a balanced and innovative economy, employing over 300,000 individuals in high-skilled lifelong careers, two-thirds of which are outside of London.

The UK insurance industry manages investments of over £1.7 trillion, pays nearly £12bn in taxes to the Government and powers growth across the UK by enabling trade, risk-taking, investment and innovation. We are also a global success story, the largest in Europe and the fourth largest in the world.


September 2020



[1] https://www.oecd.org/newsroom/gdp-growth-second-quarter-2020-oecd.htm

[2] Hymanson [2018] TC 06815

[3] https://www.smf.co.uk/publications/impact-insurance-premium-tax-uk-households/

[4] https://cebr.com/reports/the-independent-health-insurance-tax-hike-pushes-200000-people-from-private-cover-to-nhs-research-finds/

[5] This assumes no change in the volume on insurance products purchased in response to IPT changes, reflecting the “essential” nature of key insurance products such as motor and building insurance.

[6] https://publications.parliament.uk/pa/cm5801/cmselect/cmpubacc/379/37902.htm

[7] HoC Treasury Committee 1 September

[8] https://www.niesr.ac.uk/publications/economic-analysis-existing-taxation-pensions-eet-versus-alternative-regime-tee-0

[9] https://www.pensionspolicyinstitute.org.uk/research/research-reports/2020/2020-06-23-briefing-note-122-tax-relief-on-defined-contribution-pension-contributions/

[10] National Statistics, available here: Table 2.1 Number of individual income taxpayers, https://www.gov.uk/government/statistics/number-of-individual-income-taxpayers-by-marginal-rate-gender-and-age

[11] https://www.pensionspolicyinstitute.org.uk/research/research-reports/2020/2020-06-23-briefing-note-122-tax-relief-on-defined-contribution-pension-contributions/

[12] https://www.nortonrosefulbright.com/en-de/knowledge/publications/af6ee4e4/the-new-corporate-interest-restriction

[13] https://www.gov.uk/government/publications/ots-life-events-review-simplifying-tax-for-individuals

[14] https://www.royallondon.com/media/press-releases/2019/october/hmrc-breaks-its-own-record-for-overtaxing-people-on-their-pensions/ together with updates in 2020 HMRC pension newsletters

[15] https://www.royallondon.com/media/press-releases/2018/january/mps-misled-over-budget-stealth-tax-steve-webb-royal-london/

[16] https://www.cbi.org.uk/media/4026/2020-02-10-cbi-budget-submission-final-version.pdf