Is there vat on van insurance? Your questions answered

If you’ve ever wondered whether VAT applies to van insurance, you’re not alone. It’s a common question for business owners and van drivers alike. The short answer is no: van insurance in the UK is not subject to Value Added Tax (VAT). In the UK, insurance transactions are exempt from VAT. Instead, insurance is taxed through Insurance Premium Tax (IPT), which is automatically included in your premium. So, while you won’t pay VAT, IPT is the key tax to be aware of when budgeting for your cover.

In this guide, we’ll explain what IPT is, how it affects your van insurance costs, and how you can claim van insurance as a business expense. Let's dive in.

What’s covered

• What is Insurance Premium Tax (IPT)?
• Are any types of insurance exempt from IPT?
• Is IPT the same as VAT?
• How does IPT affect my van insurance premium?
• Can you claim back Insurance Premium Tax?
• Is van insurance considered a business expense?
• How do I claim van insurance on my tax return?
• What evidence do I need to claim van insurance as a business expense?
• FAQs

What is Insurance Premium Tax (IPT)?

Insurance Premium Tax (IPT) is a government tax applied to most insurance policies in the UK, including van insurance. It’s automatically added to your premium, so you won’t see it as a separate charge when you pay. Your insurer collects the tax and passes it on to HMRC. There are two rates, and the rate which you'll pay depends on the type of insurance policy and the provider offering it.

Standard rate IPT

The standard rate is 12% and applies to most annual insurance policies, including home, car and van insurance.

Higher rate IPT

A higher rate of 20% applies to travel insurance, and insurance arranged by the supplier (rather than an insurance company) on:

• Vehicles, including hire vehicles – but ordinary motor insurance is charged at the standard 12% rate

• Electronic goods and household appliances – this includes gas central heating but excludes mobile phones

When was IPT introduced?

Insurance Premium Tax (IPT) was introduced in the UK on 1 October 1994. It was created to generate revenue from the insurance sector, and initially set at 2.5%. Over time, the rate has increased to today’s standard 12%, with a higher rate of 20% for certain policies.

Don't get caught out. Sign up for your MOT reminder. Check MOT

Are any types of insurance exempt from IPT?

Yes. Not all insurance policies are subject to Insurance Premium Tax (IPT). Certain long-term and specialist types of cover are exempt from this tax. These include:

• Life insurance

• Mortgage protection insurance

• Income protection insurance

• Commercial ships insurance

• Commercial aircraft insurance

• International railway rolling stock

• Lifeboats and lifeboat equipment

• International goods in transit

In addition, some specific exemptions apply, such as disabled drivers leasing a car through the Motability Scheme and learner drivers.

You can find more information on IPT exemptions on the GOV.UK website.

Is IPT the same as VAT?

No, Insurance Premium Tax (IPT) and Value Added Tax (VAT) are not the same.

Both are government taxes, but they work differently. IPT is a specific tax applied directly to insurance premiums, while VAT is a consumption tax charged on most goods and services throughout the supply chain. In short, IPT is a one-off tax on insurance policies, whereas VAT accumulates at each stage of production and is ultimately paid by the customer.

How does IPT affect my van insurance premium?

Insurance Premium Tax (IPT) is included in the cost of your van insurance, so the higher your premium, the more tax you’ll pay. IPT is charged at 12% for most van insurance policies, and it’s automatically added to your total price.

For example, if your van insurance premium is £300, adding 12% IPT brings the total to £336, with £36 being tax. If your premium is £600, the total rises to £672, which includes £72 in tax.

This means IPT directly scales with your premium, so reducing your insurance cost also reduces the tax you pay.

Can you claim back Insurance Premium Tax?

No, Insurance Premium Tax (IPT) cannot be reclaimed - it is a non-recoverable tax. Once IPT is added to your van insurance premium and paid to HMRC, it becomes a fixed cost and is not refundable. This makes IPT different from VAT, which businesses can often reclaim as a business expense.

Is van insurance considered a business expense?

Yes, van insurance is classed as an allowable business expense for tax purposes in the UK, provided the vehicle is used for business activities (e.g. deliveries or transporting tools and equipment) You can deduct the insurance cost from your business profits to help reduce your taxable income.

You can also claim other vehicle-related costs on your tax return, such as fuel, parking fees, maintenance, and breakdown cover. Any allowable business expenses you include can be deducted from your gross income, helping to reduce your taxable income.

How do I claim van insurance on my tax return?

If you’re self-employed, either individually or in a company name, or run a business, there are two main ways to claim vehicle expenses, including van insurance, on your tax return:

1. Flat rate method

The simplest option is to use HMRC’s fixed mileage allowance. This gives you a tax deduction of 45p per mile for the first 10,000 business miles in a tax year and 25p per mile thereafter.
With this method, you don’t need to claim individual costs like fuel, parking, or van insurance, as they’re all covered by the mileage rate.

2. Actual cost method

This approach lets you claim all allowable vehicle expenses, including parking, fuel, breakdown cover, and van insurance.

To use this method, record your van’s total mileage for the year, then work out what percentage was for business use only. Apply that percentage to each expense and this gives you the amount you can claim on your tax return.

For instance, if your annual van insurance costs £500 and you determine that 70% of your mileage is for business use, you can claim £350 as a deductible expense on your tax return.

Also read: How to claim VAT back: Step-by-step guide

What evidence do I need to claim van insurance as a business expense?

To claim van insurance as a business expense, you'll need proof of your policy and payment. If you use the van for both business and personal purposes, record your mileage split to show how you calculated the percentage claimed.

While you don’t need to submit proof of expenses with your tax return, HMRC may request them at a later date so make sure you keep accurate records.

Are there any restrictions?

Yes. You can only claim tax relief for the time your van is used for business. Personal use doesn’t count, and if you can’t separate costs, you can’t claim.

Also, you cannot claim van insurance as an expense if you use the £1,000 tax-free trading allowance. Find out more on the GOV.UK website

This is a marketing article from Howden Insurance. The information in this guide is intended for general guidance only and is accurate at time of publication.

Rated Excellent on Trustpilot

500,000+ Protected Clients

Insuring for 30+ years

Insurance Broker of the decade