I have a small client who has a small car selling business. He is VAT registered. As a way to generate some revenue, he has started hiring out some his cars to people who have had their cars written off in car accidents.
As part of the service, he arranges with their insurers to transfer the insurance from their car to the hire car. Often, there is an additional premium to pay to the insurer on this (say £50). He pays this on behalf of the customer. He does this to ease the process and to speed things up.
He then hires the car out.
At the end of the hire period, the customer returns the car and is charged for the hire (whatever it may be, plus VAT). They are also charged for the additional premium which he as paid on their behalf.
My question is, is this premium subject to VAT. Paragraph 4 of HMRC:Notice 701/36 (October 2011) suggests so. BUT, my client doesn't actually sell the insurance preimum, all he does is pay it on their behalf and is reimbursed. I should note that there is no profit element and it is simply an at cost reimbursement.
Thanks in advance and I hope somebody can help me!