Schools and colleges have been given a last-minute reprieve from a Budget clause that would have slapped a 17.5 per cent penalty tax on all insurance for school excursions, from two-week trips to Venice to a modest day out at the zoo. The new tax was due to come into effect from Tuesday.
The insurance firm Zurich Municipal, which underwrites 60 to 70 per cent of all school trips, has managed to persuade Customs and Excise that school trips were not what the Government had in mind when it set a higher rate of 17. 5 per cent for some travel insurance. Schools will now only have to pay the general rate rise of 4 per cent.
The new Insurance Premium Tax was brought in to close a loophole which some travel agents and tour operators were using to escape paying VAT. But the legislation was drafted in such a way that schools, colleges and local education authorities were classified as tour operators and liable for the higher rate.
For an average coachload of 50 pupils going to a European city for a week, the typical insurance cost would be about Pounds 105; tax at 17.5 per cent would have added Pounds 18.37 - not a huge amount, but if it was a skiing trip, the insurance cost leaps to Pounds 700, and the penalty tax would have added Pounds 122. The agreement has therefore saved schools Pounds 94.50 from such a trip.
Alex Paterson, general manager at Zurich Municipal, said: "This is one of those things that got lost in the rest of the Budget; many schools probably were not even aware that it was due to happen. But when we went through the fine detail, we realised it would have meant that many school trips would not go ahead, as well as being an administrative nightmare." He explained that as well as the increased cost of insurance, schools and local authorities would have had to maintain separate accounting records for each rate of tax." Tax per pupil for day trips in the UK only amounts to 11p, so the increase would have been small, but schools would have to have kept records of the tax on each 11p. It would have been unworkable and totally unreasonable to expect school administrators to do this."
Customs and Excise have given written assurance that the guidance to Insurance Premium Tax will make it clear that the higher rate will not apply to school journey insurance, or to any voluntary association that organises trips, such as the Boy Scouts. But schools booking insurance through travel companies will have to pay the higher rate.