Is There VAT on Business Insurance?
No. Insurance premiums are exempt from VAT in the UK — you won't find 20% VAT added to your public liability, professional indemnity or employers' liability premium. Instead, most general insurance carries Insurance Premium Tax (IPT) at a standard rate of 12%, which is already included in the price you're quoted. The crucial difference: unlike VAT, you can't reclaim IPT, even if you're VAT-registered.
IPT isn't reclaimable
Why there's no VAT on insurance
Insurance is treated as a financial service in the UK, and financial services are generally exempt from VAT. HMRC's own guidance (VAT Notice 701/36) states that insurance transactions are exempt from VAT.
So the premium you pay your insurer isn't subject to VAT, and there's no input VAT on it to reclaim on your VAT return. Your insurer's invoice will show the premium as a VAT-exempt supply.
What you're paying instead: Insurance Premium Tax
Insurance isn't tax-free, though. Most general insurance carries Insurance Premium Tax, introduced in 1994 partly to compensate for the VAT exemption.
- Standard rate: 12% — applies to commercial cover including public liability, employers' liability, professional indemnity, business interruption, commercial property and product liability, as well as motor, home and pet insurance.
- Higher rate: 20% — applies to travel insurance, extended warranties and certain vehicle insurance add-ons.
IPT is charged by the insurer and is already baked into the price you're quoted — it isn't added at checkout the way VAT is.
The bit that costs businesses money: you can't reclaim IPT
This is the most important practical point on this page.
VAT-registered businesses can normally reclaim input VAT on business purchases. You cannot do this with IPT. It isn't input tax, it doesn't go on your VAT return, and it isn't recoverable — even if you're fully VAT-registered.
That makes IPT a straight cost. A business paying £2,000 a year in commercial insurance is paying roughly £214 of that in IPT which it will never get back.
Exempt isn't the same as zero-rated
Worth being precise, because the two get confused. Neither adds VAT to your bill — but they're different classifications with different consequences. A zero-rated supply is still a taxable supply charged at 0%. An exempt supply isn't a taxable supply at all. Insurance is exempt, not zero-rated.
The exception worth knowing: broker fees
Here's the detail most guides miss.
While the premium carries no VAT, a broker's separate administration or arrangement fee may well carry VAT — and if it does, and you're VAT-registered, that VAT is reclaimable.
So it's worth reading the invoice rather than assuming. Post the fee separately from the premium in your bookkeeping so you can isolate the recoverable VAT rather than burying it in the insurance cost.
Is the premium tax deductible?
Different question, and generally yes — where the policy is wholly and exclusively for business purposes, the premium (including the IPT) is normally an allowable business expense for Income Tax or Corporation Tax, subject to the usual deductibility rules. IPT paid on personal policies such as home or car insurance generally isn't separately deductible.
Not sure which covers your business actually needs?
Use our free business insurance checker to see what applies to your trade — under a minute, no jargon.
Question 1 of 8
What's your business structure?
This personalises the wording — it doesn't change what's legally required.
Frequently asked questions
Is there VAT on public liability insurance?
No. Insurance premiums are exempt from VAT in the UK. Insurance Premium Tax applies instead, at a standard rate of 12%, and it's already included in the premium you're quoted.
Can I reclaim Insurance Premium Tax?
No. Unlike VAT, IPT isn't input tax and can't be reclaimed on your VAT return, even if your business is VAT-registered. It's a permanent cost.
What's the difference between VAT and IPT?
VAT is 20% on most goods and services and is generally reclaimable by VAT-registered businesses. IPT is 12% (20% for certain policies such as travel insurance), applies specifically to insurance premiums, and is not reclaimable.
Is any VAT on my insurance invoice reclaimable?
Possibly. The premium itself carries no VAT, but a broker's separate administration or arrangement fee may carry VAT — and that portion is reclaimable if you're VAT-registered. Check the invoice and post the fee separately.
Is business insurance tax deductible?
Generally yes, where the policy is wholly and exclusively for business purposes — the premium including IPT is normally an allowable expense, subject to the usual rules.
Related guides
Insurance transactions are exempt from VAT — see HMRC VAT Notice 701/36. Insurance Premium Tax applies instead, at a standard rate of 12% for most general and commercial insurance and a higher rate of 20% for travel insurance, extended warranties and certain vehicle add-ons. IPT is not recoverable as input tax, including by VAT-registered businesses. VAT charged on a broker's separate fee may be recoverable where the normal input-tax rules are met. Where a policy is wholly and exclusively for business purposes, the premium including IPT is generally an allowable business expense, subject to the usual deductibility rules. Last checked 15 September 2026.