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Insurance payout on VAT

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Hello all

I was just seeking some advice please. 
My friend is a laser clinician and has a laser hair removal machine which became faulty in her clinic. The insurance company have been giving her the runaround and the terms state her machine should be worth less than £20,000 brand new for it to be covered by her policy. So she has provided them with an invoice showing the machine is priced at under £20k. The vat element however takes it over £20k. However she is not vat registered and did  not pay vat, but the insurance company have declined her claim saying the machine is worth over £20k. Is this right? There is no vat element payable and she didn't pay any, so wouldn't the value of the machine, not including vat, being £20k meet the terms of the insurance because the vat element never applied in the first place? It's quite confusing and feels like they're just looking for a loophole. I understand I may be on the wrong forum but any help or advice will be greatly appreciated. Many thanks in advance 

Replies (25)

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Scalloway Castle
By scalloway
07th Aug 2020 19:14

If she is not VAT registered she will have paid £20,000 plus VAT. VAT is part of your cost when you are not VAT registered.

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Psycho
By Wilson Philips
08th Aug 2020 20:08

Advice withdrawn - due to behaviour of OP

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By johngroganjga
07th Aug 2020 19:20

It’s a matter for legal interpretation of the wording of the insurance term in question. It almost certainly doesn’t say “worth less than £20,000 brand new”. Does it perhaps say that items costing more than £20,000 have to be identified and individually listed to be covered, and this one wasn’t? So it comes down to whether irrecoverable input VAT on the purchase is cost for this purpose. So it’s back to the policy terms for the definition of cost for this purpose.

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Replying to johngroganjga:
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By RavD79
08th Aug 2020 12:09

I’m sorry my wording was rather sloppy, it says it will cover equipment where a single item’s value does not exceed £20,000. And again I mistakenly thought she didn’t pay vat On the product , she did but she herself is not vat registered.
I know it’s a legal matter but I’ve never come across anything like this where the actual item value comes within the threshold but the vat tips it over the threshold and they thereby declined the claim, as I’m not sure whether she can argue that the vat will not be applicable for her.

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By paul.benny
07th Aug 2020 19:54

Business insurance generally doesn't cover breakdown - which seems to be the issue mentioned in the op.

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Replying to paul.benny:
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By RavD79
07th Aug 2020 22:50

Hi, thanks it is actually broken down beyond repair

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Replying to RavD79:
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By paul.benny
08th Aug 2020 10:17

So why do you think this insurance should pay out? Is it specifically breakdown insurance?

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Replying to paul.benny:
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By RavD79
08th Aug 2020 12:05

Yes the policy covers equipment that becomes faulty beyond repair

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By frankfx
07th Aug 2020 23:20

Was the equipment of merchantable quality.
Did if fail due to inherent manufacturing fault?
Is it known within the sector, that the kit fails.
Is the equipment financed?
Can you walk away from the agreement?
Ask your trade body for help.
If you are a paying member of a trade association, you may have access to "affordable " legal advice.
This forum unlikely to provide solace.

Me thinks the insurance policy was not understood, did you use a broker?

Accountants do like to hear outcomes from such cases, if only to warn clients to the left field risks inherent within any business.

Let us know the next steps and progress .

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Replying to frankfx:
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By RavD79
08th Aug 2020 12:16

Unfortunately the equipment was bought outright and the manufacturer technician couldn’t establish the fault either, and agreed it needed to be replaced. She isn’t a member of a body, and a broker wasn’t used.
Yes I agree this is for a legal forum I was just hoping someone may have come across somethjng like this given it’s just the vat element I’m concerned about. Will certainly keep you updated thanks

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By RavD79
08th Aug 2020 12:10

I’m sorry my wording was rather sloppy, it says it will cover equipment where a single item’s value does not exceed £20,000. And again I mistakenly thought she didn’t pay vat On the product , she did but she herself is not vat registered.
I know it’s a legal matter but I’ve never come across anything like this where the actual item value comes within the threshold but the vat tips it over the threshold and they thereby declined the claim, as I’m not sure whether she can argue that the vat will not be applicable for her.

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By fawltybasil2575
08th Aug 2020 13:09

@ RavD79 (OP).

As has been correctly stated above, your question is more of a legal than an accountancy one: and hence a specialist solicitor should be consulted. Indeed there are other specialists in the Insurance Claims field, and your Googling “Insurance Claims Advisors” will enable you to contact specialists for initial free advice (for at least half an hour).

Notwithstanding my above general remarks, frankly sight of the insurance policy is the very minimum which anyone tasked with providing fuller advice would wish to see before attempting to give you advice on the merits of your claim (in reality one would also need to see the entire correspondence thus far re the claim).

I fully appreciate your comments re the VAT aspect, and that such was the reason for your raising the question on this site, and indeed it is an interesting question. Frankly, and without seeing the crucial wording of the policy, I would opine that the claim is probably indeed a valid one. If you could provide a copy of the precise wording of the relevant part of the policy, then one may be able to offer more substantive advice (whilst heavily caveating that your question remains one for a solicitor or Claims Advisor). Reluctantly thus donning a quasi-legal cap, I can envisage a letter to the Insurance company along the lines of:-

"The cost of the machine at issue was £18,000, materially below the £20,000 threshold figure in clause xx(x) of the policy. The facts that (i) the supplier on this occasion was registered for UK VAT (for which they were thus also obliged to seek payment) and that (ii) I operate a business which does not enable me to recover that VAT from HMRC, are both self-evidently entirely irrelevant in establishing that the cost of the machine itself was below the £20,000 threshold., and the claim thus valid".

More generally, and again this is a field more appropriate to a solicitor, one has to ask whether your friend has pursued a claim against the supplier (presumably the manufacturer) - at first blush, if the manufacturer's very own technician cannot explain the fault (per your 12.16 post) in the machine manufactured by them, then a case could perhaps be made for its not being of "merchantable quality" (the valid point per frankfx's post above). Perhaps you could indicate the approximate date of purchase, which may be relevant to potential action in that regard.

Basil.

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Replying to fawltybasil2575:
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By RavD79
08th Aug 2020 14:11

May I thank you so much for your kind and detailed input, especially without sight of basic documents. It is very much appreciated.

The wording states:

Covered Equipment:

Equipment at the premises owned by You or for which You are responsible, excluding :
... any electronic equipment used for....treatment....with a new replacement value in excess of £20,000.

Thank you so much again for your time, it is so very much appreciated

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By Tax Dragon
08th Aug 2020 13:29

Has your friend asked you to share all this information with the world?

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Replying to Tax Dragon:
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By RavD79
08th Aug 2020 13:57

Is this the extent of your contribution? What on earth would it have to do with you whether she had or hadn’t? Which incidentally she has gladly authorised. Please be kind enough to participate positively or, as they say, jog on.

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Replying to RavD79:
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By Tax Dragon
08th Aug 2020 14:09

It was a simple question, hardly deserving of your childish overreaction. But, happy to jog. See ya.

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Replying to RavD79:
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By Paul Crowley
08th Aug 2020 14:28

The more details that are put into the public domain the more likely that the annoymous friend becomes publicly identifiable.
It is a concern that that it is reasonable to check, given that accountants have a requirement to maintain confidentiality.

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Replying to Paul Crowley:
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By RavD79
08th Aug 2020 14:41

I am not an accountant and have no professional relationships, therefore am not bound by the protocol.

There are no details whatsoever in my post that would allow anyone to identify my friend, I am certain there is nothing here that will make her publicly identifiable. I am quite capable of ensuring her anonymity. I have simply come here to ask whether anyone may have any experience of this issue, that is all.

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Replying to RavD79:
RLI
By lionofludesch
08th Aug 2020 17:07

Well, I was going to reply but I won't bother now.

The teddies have started to come out of the pram.

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Replying to lionofludesch:
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By RavD79
08th Aug 2020 19:21

Crikey, I wasn’t going to bother responding either but cannot get over the fact that just because someone has sought advice On this forum people run with the assumption that the writer must be astoundingly stupid. Is it really that difficult to stick to the issue in hand rather than making points which, frankly, are for ME to consider? Utterly patronising to ask whether I’ve sought permission from my friend and to insinuate that I could make her publicly identifiable when neither of those things concern anyone but her and I!
I’ll lose no sleep over the fact that you have chosen not to assist, thank you all the same.

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By frankfx
08th Aug 2020 13:37

Insurance aside this is a troubling question.

High cost piece of equipment.

Integral to the business.

Fails.

And it seems that the full burden of cost falls on the purchaser.

Most high cost technical equipment can be acquired with some sort of warranty or repair cover .

Think of a household boiler.

Good car warranties.

Equipment failures,even if maintained to manufacturer's standards, do happen.

This therefore raises a fundamental question in this case

Did the business owner fully comprehend the particular cover required?

Was it " sloppy'' assumptions that the insurance policy would meet all needs.

I raise the above point because many, too many, business owners make assumptions that come back to bite.

It could be that the insurance policy was fit for purpose..... so long as the full disclosures were made, and perhaps a platinum policy was bought rather than the gold policy!

As said in my last post, please kindly share the outcome.

One hollow feeling is that with so much insurance cover now acquired online.
There is now a dearth of independent business insurance advisors, with knowledge of the wrinkles in cover.

Their core be business has been swept away by online platforms.

( Online pharmacies will diminish access to high street pharmacists , with excellent skills)

Back in the day the local accountant could refer clients to a local insurance broker with a wide range of knowledge to share with clients.

That day is a distant memory.

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Replying to frankfx:
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By RavD79
08th Aug 2020 14:00

Thank you very much, I appreciate your input. The machine was out of manufacturers warranty and the policy was sufficient to cover The replacement of an irreparable machine, which this is. No other issues have been raised by the insurers save for the simple fact that the machine goes over the £20k threshold due to vat and therefore falls out of the remit of covered equipment and the claim has been declined. Thanks

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By fawltybasil2575
08th Aug 2020 15:57

@ RavD79 (OP).

Re your 14.11 post, this gives me more assurance (subject to a new caveat below) that your friend is on solid ground in their claim.

The term “value” cannot possibly be correctly interpreted, by the insurance company, as being inclusive of VAT. The “new caveat” to which I refer arises from the word “replacement”: it is thus not the original cost but the cost of replacing the machine at issue.

The cost of that machine may of course have changed since the original machine was purchased, and could thus possibly now exceed the £20,000 threshold figure.

If it is a “big standard” machine, as opposed to a bespoke manufactured machine, then determining its replacement cost should be straightforward, in which case submitting sales literature, and/or correspondence from the original supplier (or from other suppliers if they are other suppliers who manufacture that particular machine) indicating the market value, should suffice to disprove the insurance company’s attempts to avoid their obligations.

If you indicate to me the replacement value, I could suggest an amended suggested wording for a letter/email to the insurance company. The

Basil.
EDIT. I have just now read (belatedly - sorry) your 14.00 post which, if I correctly interpret it, confirms that the replacement cost is indeed below £20,000. If so, I believe your friend is thus on firm ground and that the insurance company is being disingenuous.

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Replying to fawltybasil2575:
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By RavD79
08th Aug 2020 16:39

You are so extremely kind for giving me so much of your time, it is very much appreciated. Thank you for your thorough and non-judgmental consideration of my query. I will keep you updated as to the outcome! Thank you again

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Maddy Christopher
By Maddy Christopher
10th Aug 2020 11:56

Dear RavD79,

I would advise you not to have a go at those you are asking from help from.

I understand you took TaxDragon's question in a negative light, but given the nature of the subject, the question was valid and worth answering. It is always necessary to consider and question the information being shared on the site – however obvious the answer may seem.

Sniping at those choosing to respond to your question is unwise, and it will not encourage users to answer your questions in the future. Please assume that all questions are meant to be helpful to all users before jumping to start an argument.

The comment section will now be closed to prevent further contention.

Kind regards,

Maddy from the Aweb team.

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