Total Tax Contribution survey of the members of the Association of British Insurers (ABI) February 2021 Study prepared by PwC for Contents CONTENTS Page Foreword 3 Executive summary 4 Purpose and outline of the survey 5 The impact of the pandemic 7 Total Tax Contribution of the ABI membership in the UK 8 Profile of taxes paid survey participants 10 Comparing the different tax profiles for general and life insurers 13 Trends in tax payments 15 Employment taxes 17 Total tax contribution in context 18 Appendices 19 Appendix I – List of UK taxes borne and collected by insurance companies 20 Appendix II – Data provided 21 Appendix III – Glossary of taxes 22 About the Association of British Insurers The Association of British Insurers is the voice of the UK’s world-leading insurance and long-term savings industry. A productive and inclusive sector, our industry supports towns and cities across Britain in building back a balanced and innovative economy, employing over 300,000 individuals in high-skilled, lifelong careers, two-thirds of which are outside of London. About PwC PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.co.uk. Total Tax Contribution of the Association of British Insurers’ membership in the UK February 2021 PwC 2 Foreword Welcome to the 2020 PwC Total Tax Contribution In May 2020, the insurance and long-term savings (TTC) survey of the members of the Association of industry also launched the Covid-19 Support Fund British Insurers (ABI). This report is published at a time working with the Charities Aid Foundation and partners of great uncertainty and challenge globally, for including the National Emergencies Trust and households, business and for government; certainly Business in the Community, to support those in the most severe shock since the financial crisis and greatest need. The fund has now raised over arguably for a century. £100million and is the largest sector fund of its kind in the UK. This is the fifth survey that PwC has carried out for the ABI, so it is possible to compare the results over time. The reshaping of the economy and the departure of The period covered by this survey largely precedes the the UK from the EU provide opportunities for a reset, UK onset of the coronavirus pandemic, but the macro- both in terms of broader tax reform to ensure a economic context was already one of slowing GDP competitive international regime and of government growth and ongoing political uncertainty. Looking at priorities in supporting industrial sectors, addressing previous surveys, the trend in overall contribution and regional disparities and accelerating technological the profile of taxes is influenced by both legislative development to address the future business (including the introduction of new taxes and changes to environment. These are all areas where the insurance the rates of existing taxes) and economic changes. industry has a crucial role to play, continuing to provide These are outlined in more detail in the report but, a vital final safety net for customers, providing high direct comparison with the last ABI TTC report (2014) quality jobs and, as large-scale investors in is particularly instructive: the total tax contribution has infrastructure and green assets, as we look to increased by 54.8% since the last study in 2014 and decarbonise the economy. There are continuing the ratio of TTC to turnover has increased from 12.9% discussions on how regulatory changes can ensure the to well over a fifth of total revenues (21.9%). industry builds on its contribution, most notably in the consultation on Solvency II. This report is a good The survey has been carried out for the ABI to look at reminder that taxes also have an important role in the contribution made by its members to the UK public ensuring that the competitiveness of the industry and finances. Twenty-five companies took part in the how they impact consumers also needs to be survey, providing data on their UK tax payments in considered. their accounting period ended in the year to 31 March 2020 (2020). The companies taking part in the survey In closing can we thank the participating companies for represent 77.9% of the total Gross Written Premiums their support and encourage business leaders and (GWP) written by the entire ABI membership for that other stakeholders to recognise the importance of their year, so the results are representative of the sector as continued engagement with the tax agenda in the a whole. The participation level demonstrates the value future. for companies in preparing and understanding their TTC data. This is the fifth survey PwC has carried out for the ABI using the same methodology and it has therefore been possible to compare the results. The Covid-19 outbreak is unprecedented in modern Elizabeth Armstrong Andrew Packman times and is a significant challenge to the UK economy Chair, ABI Taxation Leader, Total Tax and the insurance and long-term savings industry. To Strategy Committee Contribution, PwC UK support customers and businesses throughout the pandemic the ABI and its members have agreed pledges on home, motor, health and protection, pet, and travel insurance - offering flexibility, additional services, policy extensions, advice and support for customers. Total Tax Contribution of the Association of British Insurers’ membership in the UK February 2021 PwC 3 Executive summary The key findings from this survey show: TTC as a percentage of Net 21.1% Written Premiums (NWP) has We estimate the Total Tax Contribution for the ABI increased from 12.9% (2014) to membership is £16.1bn 21.1% (2020) ABI members make a significant contribution to the UK The TTC is equivalent to 21.1% of economy. They made an estimated Total Tax Contribution NWP, over a fifth. This has % (TTC) in the region of £16.1bn (comprising £4.9bn of taxes increased from 12.9% to 21.1% 12.9 borne and £11.2bn of taxes collected), or 2.2% of total for companies that participated in UK government tax receipts in 2020 (the year to both the 2014 and 2020 surveys. 31 March 2020). The increase in the ratio is a result of TTC increasing at a greater rate than NWP, reflecting the increase £11.2bn 2014 2020 in IPT. £16.1bn Taxes collected Total tax contribution £4.9bn 2.2% Taxes borne General and life insurers have different tax profiles IPT is a significant tax for general insurers, accounting for of total UK 59.4% of the TTC profile. government tax receipts in 2020 For life insurers, the most significant tax is tax deducted at source (including PAYE on annuities) which accounts for 39.8% of TTC. 59.4% 39.8% IPT PAYE on annuities Between 2014 and 2020, the estimated TTC for the 54.8% ABI membership has increased by 54.8%. General Insurance Life Insurance Insurance Premium Tax makes up a significant portion of the total bn bn Insurance Premium Tax (IPT) is a significant tax for £1.7 £170 insurers with participants reporting that nearly a third of their UK insurers are expected Trade credit insurance TTC is IPT. to pay out in excess of covers about IPT has undergone 3 rate increases since 2014. In 2014 the £1.7 billion, in £170 billion of standard rate of IPT was 6% and, in 2020, this rate is 12%. response to the COVID- exposure on UK buyers. These higher rates of IPT have driven much of the increase 19 crisis. This includes Maintaining availability of in the TTC of the sector. £900 million in valid this during the pandemic Rate of Insurance business interruption with Government support Premium Tax claims, £275 million in has been essential to travel insurance claims businesses continued 12% and £500 million ability to trade on credit. estimated from Lloyd’s Group syndicates 6% covering event insurance. 6% A strong insurance sector is important for the recovery of the economy. 2014 2020 Total Tax Contribution of the Association of British Insurers’ membership in the UK February 2021 PwC 4 Purpose and outline of the survey The Total Tax Contribution (TTC) survey has been carried The time period covered out for the Association of British Insurers (ABI) to look at the contribution made by its members to UK public finances. This fifth edition of the survey looks at tax payments by ABI Twenty-five companies took part in the survey, providing member companies in their accounting period ended in the data on their UK tax payments in the accounting period tax year to 31 March 2020; for the majority (88%), this is the 2 ended in the year to 31 March 2020 (2020). The participation calendar year to 31 December 2019 , largely preceding the level demonstrates the value for companies in preparing and coronavirus pandemic. understanding their TTC data. This is the fifth survey PwC The first edition of the survey looked at tax payments by has carried out for the ABI using the same methodology and insurance companies in their accounting period ended in the we have therefore been able to compare the results. tax year to 31 March 2007. The second survey (relating to TTC methodology the year to 31 March 2009) showed the impact of the recession and financial crisis. The third survey (relating to The surveys use the PwC TTC methodology, which looks at the year to 31 March 2011) showed the position as the both the taxes borne and taxes collected.