Share this content

Is insurance payout included for flat rate ?

What to include in flat rate turnover for vat calculation

Didn't find your answer?

Hi, I'm a bookkeeper and have a client who has recently become vat registered on the flat rate scheme. She has several holiday cottages and insures each booking with an insurance company who pay out a percentage amount to her if a booking has to be cancelled and payment refunded to the guest. From reading around I don't think this insurance money should be included when calculating the Box 1 and Box 6 figures as it's not a supply of any kind but it is income so I'm not certain. Can anyone clarify for me please ? I realise that the flat rate for hospitality is currently 0% but it won't be forever and it's still relevent for Box 6 potentially anyway.

Replies (10)

Please login or register to join the discussion.

avatar
By lesley.barnes
31st Aug 2021 11:04

Is the insurance company refunding the gross amount of the cost of the holiday let or the net amount?

Thanks (0)
Replying to lesley.barnes:
avatar
By Rat Race Refugee
31st Aug 2021 11:45

I believe it's based on the gross amount. The amount paid out is a variable percentage depending on whether a new booking is subsequently received to cover all or part of the original booking. The money paid out comes from America so is converted from dollars, just to make life even more complicated !

Thanks (0)
Jason Croke
By Jason Croke
31st Aug 2021 12:16

So I book a weeks holiday, pay £1,000 but then have to cancel so I get my £1,000 back as a customer, via the insurance.

At the same time as me getting my £1,000 back, your client gets a payment from the insurers, presumably for lost income as a result of customer cancelling.

I think we first of all need to understand what type of insurance policy it is (block/individual) and who is the insured (customer or supplier). https://www.gov.uk/guidance/insurance-notice-70136#related-services

At face value, it sounds like business interruption insurance, compensating the business owner for loss of income, which would ordinarily be outside the scope of VAT and would not be included in the FRS as there is no supply...but a bit more detail would be useful before being able to be more concrete.

Thanks (1)
Replying to Jason Croke:
avatar
By Rat Race Refugee
31st Aug 2021 12:29

The £1000 paid back to the guest is refunded by the business owner who makes a claim from the insurance company, who then pay out a percentage of the £1000. So I would say that it is the business owner who is covered. The business owner pays a fee of 4.4% of the amount of each booking made to the insurance company and they pay out on those that cancel. If it helps the company doing the insurance is Master Cancel aka Rental Guardian.

Thanks (0)
avatar
By lesley.barnes
31st Aug 2021 12:17

I would say VAT is due - the client has received settlement including VAT albeit a % based on circumstances and the terms of the insurance contract. Also this guidence talks about VAT and cancellations, the owners have received a payment for the cancellation.

www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-7093#sec...

Thanks (0)
Replying to lesley.barnes:
avatar
By Rat Race Refugee
31st Aug 2021 12:55

That was my initial thought but the guidance you mention is talking about money received from the customer whereas this is an insurance payout so I wasn't certain it should be treated the same way.

Thanks (0)
avatar
By lesley.barnes
31st Aug 2021 13:19

I think you need to check who it is that is covered, are the owners acting as agents for the insurance company? When I've booked holiday lets the invoice is usually broken down to the cost of the let + cancellation insurance + admin costs. I once did have to claim, filled in the form that was supplied by the owner and sent off the required documents but to the insurance company. After a period of time I got back the full cost of the holiday back but from the owner of the let not the insurance company.

Thanks (0)
Replying to lesley.barnes:
avatar
By Rat Race Refugee
31st Aug 2021 14:21

I've just checked. The business owner refunds the guest (no forms or anything) and then a claim is made on the insurance.

Thanks (0)
avatar
By Rat Race Refugee
31st Aug 2021 14:06

Searching further on AWEB (couldn't find anything earlier) I've just discovered this https://www.accountingweb.co.uk/any-answers/output-vat-on-insurance-claim. Presumably the answer to this from lionofludesch stating that insurance payouts are outside the scope of vat would be applicable here ? And therefore, even on the flat rate scheme, I would leave out these monies from both box 1 and 6 ... ?

Thanks (0)
avatar
By rmillaree
01st Sep 2021 08:42

This really is a most excellent question - on first principles if the payment relates to a supply that has been made i would struggle to believe that this could be outside the scope of vat. I must admit though i am basing my answer on a complete hunch in this regard so have very little conviction my answer is correct.

With regard to the insurances payout generally nothing has normally been provised to anyone services wise before the payout is received.

In this case it seems reasonably clear that a service of booking and making available accommodation has been provided and the payout received does appear to directly relate to the taxable supplies that have been provided IMHO (709/3 - 7.2) - so i would be surprised if this cunning vat avoidance plan worked. If it does work no doubt "Uber" will be on it as we speak providing such services.

Thanks (0)
Share this content