VAT Treatment of Insurance Repair Services

HMRC have this week published a Revenue and Custom Brief regarding the VAT treatment of insurance repair services.

 

Under normal circumstances, if an insured party makes a claim for damage to goods covered by their policy, any repair services are deemed to have been supplied to the insured party whilst the insurer will cover any costs. However, some insurance providers specify in their contracts that they will be the ones to repair the goods and in this instance they will be the recipient of any repair services required. Under the normal place of supply rules for services, if either the insurer or the insured is located outside the UK, VAT will be due where the recipient of the service is located. This has led to some insurance providers setting up offshore entities who would then receive any repair services free of VAT leading to them having a competitive advantage over UK based insurers.

 

This has been addressed by the new brief which states that any repair services provided will be subject to a new use and enjoyment provision. As a result, VAT will be due where the service is consumed, meaning goods repaired for people living in the UK will be chargeable to UK VAT (irrespective of where the insurer commissioning the work is located). The changes resulting from the brief will come into effect from 1st October 2016.

 

If you provide repair services of this nature or are an insurer involved in the repair of damaged goods and are unsure of the implications of this new Brief, please call our free VAT helpline for expert advice.

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