VAT on insurance excess contribution

VAT on insurance excess contribution

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My client supplies equipment to customers. The supply is standard rated. The equipment is insured with an excess. In the event of damage by the customer, the customer is required to pay the excess to the client (this is in the terms and conditions).

Is the contribution to the excess subject to VAT?

Does this change if the customer is only required to make a partial contribution (e.g. 50% of the excess)?

Does this change if the client does not actually claim against the insurance but self funds the repair?

Does this change if the customer pays the insurance company directly?

A bit cheeky asking 4 questions in one posting I know. Sorry about that!

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PS Ok I give up. Having edited this 4 times, I have now got all the unwanted code at the bottom rather than the top. But how do I get rid of it completely? I am sure I have seen something on the site about this but I can not find it now.

Replies (4)

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chips_at_mattersey
By Les Howard
26th Apr 2011 16:12

VAT & insurance excess

Don't try to match the excess with the VAT!

If the customer is VAT-registered, then the Insurer will not fund the VAT, leaving the customer to pay the excess and the VAT on the repair. He can reclaim the VAT. It is likely that the VAT will equate to more than 20% of the value of the excess. The Client will need to invoice the customer for the excess and the VAT.

If the customer is not VAT-registered, then the Insurer will fund the VAT. The customer will pay the excess, but no VAT. The Client will invoice the customer for the excess only.

If the customer pays the Insurance Company directly, then that should not change. However, different Insurance Companies do things differently.

Do re-submit if questions remain.

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By paulwakefield1
26th Apr 2011 18:12

Many thanks. So, just to confirm....

when my client invoices the customer for the excess (or I suppose technically an amount equivalent to the excess), it is not considered a supply or is considered to be exempt and there is no VAT to charge on that amount.

i.e. Repairer invoices client inc. VAT; client pays repairer and recovers VAT; insurer pays client net of VAT and excess; client claims excess with no VAT from customer (who typically will not be VAT registered).

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chips_at_mattersey
By Les Howard
27th Apr 2011 10:13

Sounds ok to me!

I had to draw out a diadram representing the four parties involved, but it seems to work.

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By paulwakefield1
27th Apr 2011 10:31

Thank you

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