The NHS Litigation Authority (NHSLA) has until the end of next month to settle cases and avoid paying extra tax on ATE premiums, a leading insurer has warned.
Paul Hurley, director and head of ATE at ARAG, said the firm would be charging insurance premium tax (IPT) at the higher rate of 9.5% from 31 January 2016.
The increase from 6% was introduced on 1 November this year, but under the rules litigants can avoid paying at the higher rate where the policy was issued before that date.
From 1 March 2016 all IPT must be paid at the higher rate, and Mr Hurley said premiums must be remitted to ARAG by 31 January 2016 to allow enough time for them to reach HMRC before the deadline.
In medical negligence cases, which benefit from an exemption to LASPO, most of the ATE insurance premium is payable by the NHSLA when the case is settled, rather than being taken from claimants’ damages.
Mr Hurley, said the NHSLA’s delaying tactics might make it liable for tax at the higher rate.
“Defendant solicitors should warn their clients of the additional liability they are risking if the premium is not paid at the conclusion of a clinical negligence case,” he said.
“Obviously this is money that is coming out of the public purse and rather than using delaying tactics without extremely good reason, then quite simply they should be settling the cases more quickly and saving the taxpayer money,” he said.
Mr Hurley said he “could not speak for the competition, but I am sure we are all in the same boat. The [NHS Litigation Authority] I’m sure are dragging their feet in settling cases, so it wouldn’t just impact us.”
He estimated that the additional liability could amount to “many thousands of pounds” if the situation was replicated across the country.
David Pipkin, director of the underwriting division at legal expenses insurer Temple Legal Protection, agreed that in certain circumstances “delay could result in higher insurance premium payments”, although this would “depend on the historical way in which the providers have dealt with the revenue”.
Another problem, he said, was the 8% annual interest that was being run up on the whole bill, which could amount to “an appreciable sum” if it resulted from defendants “significantly obstructing the bill”.
In October, a leading broker warned  that solicitors failing to deduct and pay the correct amount of IPT after the budget increase may find that insurers charged them the balance.
An NHSLA spokesman said it was “aware of the change in [IPT]”, adding: “However, this does not influence our decision to challenge ATE insurance premiums where this challenge is deemed appropriate.”