Raising the rate of insurance premium tax (IPT) will hurt homeowners and small businesses, experts have warned.
The Federation of Master Builders (FMB) and the Association of British Insurers (ABI) have issued a joint statement claiming that any further hike in the insurance premium tax rate will result in higher prices for construction companies and other small or medium sized enterprises (SMEs).
The two organisations have warned the increasing cost of insurance may discourage clients from taking out appropriate coverage.
Furthermore, the higher cost of taxation could stifle SME growth at a time of economic uncertainty.
“Insurance premium tax is a tax on businesses, especially SMEs that often operate on very tight margins and that do the right thing by purchasing insurance to help manage their risks,” said James Dalton, director of general insurance policy at the ABI.
“At a time of continued economic uncertainty, with many firms facing increasing costs, the last thing they need is a further hike in insurance premium tax.
"Unlike VAT, no element of insurance premium tax can be reclaimed by businesses 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 insurance premium tax.”
The standard rate of insurance premium tax is currently 10 per cent, but it is set to increase to 12 per cent on 1 June 2017.
This represents the third increase in the tax in two years, and small business owners are concerned the chancellor may announce a further increase in his spring Budget.
Brian Berry, chief executive of the Federation of Master Builders, warned the “stealth tax” could undermine good builders who play by the rules and encourage the rise of cowboy builders.
“The doubling of insurance premium tax over the past two years has troubling implications for construction SMEs and home owners alike,” he said.
“This stealth tax, which is set to rise for the third time in 18 months, effectively provides an additional competitive advantage to unscrupulous and uninsured builders.
"By driving up the costs of insurance, it punishes those businesses that play by the rules and make sure that they are always covered.
"This is increasing the danger that home owners could be tempted to opt for uninsured builders who are able to offer a more competitive quote.
"This stealth tax may also discourage clients taking out a warranty on building work, which is never advisable practice on a significant building project and could lead to plenty of heartache for consumers further down the line.
"It’s vital that we get a commitment from the government that this third rise of insurance premium tax will be the last for this parliament.”
