VAT Treatment on Insurance Claim

My client is a builder and has quoted for a repair job which will be reclaimed on insurance. He will be invoicing the insurance company directly for his services. The insurance company has assured him that they will not pay the VAT on his invoices.

I've trawled through the HMRC website and found the following guidance which seems pretty clear cut to me:
"UK law also specifically excludes services supplied in settlement of an insurance claim from the exemption. For example, where a pipe bursts and the insurer pays for a plumber to repair the damage so that the insured party receives plumber’s services rather than a sum of money from the insurer in settlement of the claim, the plumber’s services are not insurance related and will be liable to VAT in the normal way."

Does this mean therefore that the builder is expected to take the hit on the VAT? According to the above he must charge VAT on his invoice to the insurance company. But as a supplier of insurance they are not entitled to reclaim the VAT on his invoice, hence why they are saying they will not pay the VAT on his invoice. The client who has engaged the builder is an individual looking to carry out repairs on his home so he cannot reclaim the VAT. Surely this can't be right?

Many thanks in advance to anyone who can clarify this, or let me know if there is a particular way of dealing with such issues.

SD

Comments
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It isn't right

neileg |

So....

Sir Digby Chicken Caesar |
Sir Digby Chicken Caesar's picture

I think...

neileg |

The insured party has

chetan |