Are credit insurnace claim proceeds vatable?

Are credit insurnace claim proceeds vatable?

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We are a construction company who have had a contractor place themselves in liquidation owing us £160k + VAT. We have a credit insurance policy in place with cover on this contractor of £150k. Can somebody please confirm whether we will have to account for the output VAT when we receive the insurance money for the amount covered. AS the proceeds of any insurance claims are generally VAT exempt, I would assume not, but I would prefer to have official clarification from somewhere.
Brian Johnstone

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By AnonymousUser
30th Aug 2002 17:05

No
The payment from the insurer does not represent consideration for a supply of goods or services made by your company. Therefore VAT is not due on the amount.

The potential complication could be if you have claimed bad debt relief on the original VAT amount charged to the contractor. However C&E public notice 700/18/97, para 2.15 states that payment by an insurer for default does not trigger a requirement to repay any amount reclaimed under the bad debt relief scheme. Therefore you should be in the clear!

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By neileg
09th Aug 2002 08:42

Unoffical confirmation!
Since no one else is answering...

I presume you will have claimed bad debt relief on the original debt, so that you are now in the position of needing to declare output tax on any subsequent receipt.

I believe, but don't know of any formal authority for this, that the insurance proceeds are compensation for loss, rather than payment of the underlying debt. In this case, no output tax is payable. It would have been different if the debt had been assigned, as is often the case in factoring arrangements.

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