Insurance tax will hit AA members: More than half the UK's motorists face an unexpected increase in subscriptions

ABOUT 13 million drivers, more than half the UK's motorists, are facing an unexpected increase in subscriptions to the AA and RAC because of the wording in a new tax to be introduced in October 1994.

A spokeswoman for the AA said: 'It could mean an extra pounds 3 on our fee for total personal membership, which is currently pounds 99. But no decision has been taken yet.'

The insurance premium tax announced in the Budget in November 1994 was intended to be a cheap way to raise a 3 per cent levy against general insurance premiums. But because of the way insurance has been defined, motoring associations will also be affected.

Customs and Excise insists that the Government intended to bring AA and RAC membership fees into the new tax. The Finance Bill comes to committee next week and the new tax will probably be considered at the end of February. 'We are in discussions with the AA and RAC over the operation of the tax,' a Customs spokesman said.

Both the AA and RAC say that under the present wording they will be liable to the 3 per cent levy on most of their membership fees, but that they cannot make a decision on precisely what to do until the talks with Customs are completed.

A spokeswoman for the AA, which had gross income of pounds 1.3bn in 1992, said: 'Some of our subscriptions are liable. Whether that financial burden will be passed on in fees has not been decided. We froze our subscriptions in January 1994 and the board is very keen not to raise fees becasue of the tax. But no firm decision has been taken yet.'

A spokesman for the RAC, which has 5.67 million members, said: 'This will affect us, there is no doubt about that . . . but until our discussions with Customs and Excise are over it is difficult for us to make a firm decision on what to do.'

In the Budget the Chancellor said that the new insurance premium tax 'will apply to most general insurance of risks located in the UK.' The City law firm Lovell White Durrant said the new tax was intended to apply only to insurance companies carrying on general insurance business regulated under the Insurance Companies Act 1982.

But the draft legislation does not define 'contract of insurance' and 'insurer', so that the tax can be applied to anyone who provides insurance as defined under common law. Under common law, car associations providing breakdown services must be treated as insurers.

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