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Garage doing its own vehicle's insurance repair

VAT and invoicing query

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My client is a vehicle repair and servicing garage operating as a ltd co. One of their own vehicles was struck whilst parked and the insurance company agreed for them to carry out the repair work themselves. They invoiced the insurance company (deducting the policy excess and VAT) and were duly paid. The policy excess was then recovered at a later date from a specialist company. Am I correct in thinking that my client needs to invoice itself for the excess and VAT, enter a dummy receipt and payment to clear the Sales and Purchase ledger invoices and then enter the policy excess recovery as a (real) bank receipt?  If not, how do I correctly account for the VAT? Thank you.

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chips_at_mattersey
By Les Howard
28th Sep 2020 15:15

I am thinking there is no supply, as the garage repaired its own car. So no output tax and no input tax.

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By The Dullard
28th Sep 2020 15:34

Did they invoice the insurance company at a profit? Or did the insurance company just make good the (net of recoverable VAT) costs?

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Replying to The Dullard:
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By Helen fisher
28th Sep 2020 16:44

They charged the insurance company labour at their normal hourly rate and parts with the usual mark-up, so yes, there is a profit.

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Replying to Helen fisher:
RLI
By lionofludesch
28th Sep 2020 17:04

Helen fisher wrote:

They charged the insurance company labour at their normal hourly rate and parts with the usual mark-up, so yes, there is a profit.

There's still no supply.

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Replying to Helen fisher:
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By The Dullard
28th Sep 2020 17:17

I don't see how they can self-supply their own staff or parts that they've just bought; they cant use them twice.

There's no reason for the insurance company to pay more than cost, as they are only required to indemnify the loss. If they had just done that, I would accept that there was no supply.

Since there's a profit though, I think that there is a supply by virtue of VATA 1994, s 5(2)(b), because it isn't just indemnification of costs,with the effect that there's VAT to be accounted for (on the whole amount), and there's nobody that can recover it, making it a cost to the repairer, unless they can get the insurance company to pay it (good luck with that one).

There are specific situations when there is a deemed self-supply for VAT purposes and this isn't one of them.

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Replying to The Dullard:
RLI
By lionofludesch
28th Sep 2020 17:38

The Dullard wrote:

I don't see how they can self-supply their own staff or parts that they've just bought; they cant use them twice.

There's no reason for the insurance company to pay more than cost, as they are only required to indemnify the loss. If they had just done that, I would accept that there was no supply.

Since there's a profit though, I think that there is a supply by virtue of VATA 1994, s 5(2)(b), because it isn't just indemnification of costs,with the effect that there's VAT to be accounted for (on the whole amount), and there's nobody that can recover it, making it a cost to the repairer, unless they can get the insurance company to pay it (good luck with that one).

There are specific situations when there is a deemed self-supply for VAT purposes and this isn't one of them.

Jeez - that's a very harsh reading of s5 (2)(b). I'd offer very good odds against your average VATman/woman taking that point.

I hadn't ruled out partial exemption. Unlikely, I agree. But we haven't sufficient information to say.

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Replying to lionofludesch:
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By The Dullard
28th Sep 2020 17:43

It is most certainly a problem that would have been best thought about before the problem, rather than after the problem. The solution seems to have been to just avoid the problem and let a rival outfit do the repair.

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Replying to The Dullard:
RLI
By lionofludesch
28th Sep 2020 17:59

The Dullard wrote:

It is most certainly a problem that would have been best thought about before the problem, rather than after the problem. The solution seems to have been to just avoid the problem and let a rival outfit do the repair.

For a commission, perhaps.

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RLI
By lionofludesch
28th Sep 2020 16:20

I'm of the opinion that the garage correctly did not invoice VAT to Insco.

It's not out of pocket in respect of the VAT, assuming it's fully taxable, as it can recover VAT on the parts it uses under normal VAT rules.

The supply, if there is one, is a self-supply from the garage to itself.

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