The NHS will needlessly pay an additional 3.5% in Insurance Premium Tax (IPT) if the NHSLA continues to stall payment of outstanding after-the-event (ATE) premiums for cases that were concluded before November 2015.
ARAG UK, a leading provider of ATE policies in clinical negligence cases has already warned defendant solicitors that they need to discuss the additional liability with clients urgently if the tax is to reach HMRC in time to avoid attracting the new, higher rate.
However, ARAG estimates that, across the industry, there are thousands of concluded clinical negligence cases in which payment of the ATE premium is still outstanding, the majority of which will involve the NHSLA.
“The additional tax bill for each of these cases is going to be hundreds of pounds, so this amounts to a huge sum of tax that the NHS should not have to pay,” comments ARAG Director and Head of ATE, Paul Hurley. “The total is certainly well in six figures and could be as high as £250,000.
“Delaying payments is a familiar tactic in clinical negligence cases, but I’m not sure clients are fully aware that it could significantly add to their costs following the IPT increase.”
The Chancellor announced the increase in IPT from 6% to 9.5% in his Summer Budget, with the new rate applying from 1 November. Cases that were concluded by that deadline should only pay IPT at the old 6% rate, as long as the tax is paid by the end of February.
ARAG has highlighted that premiums will need to be paid in good time for the tax to reach HMRC in February and has set a 31 January deadline for defendant solicitors to identify relevant cases, raise the issue with clients and settle any premiums that may be outstanding.