Share this content

VAT Partial Exemption & Insurance Claim

Partial Exemption calculations with Insurance claim recoveries causing a headache.

Didn't find your answer?

Client has property business with some properties that are VATABLE (opted to Tax) and some are exempt (no option in place).

Some years client can be fully taxable (within de minimis limits) and some years they are partly exempt - this depends on levels of expenditure each year on fees, repairs etc.

During  the current VAT Year (annual accounting) there was a large insurance claim for damage at one of the exempt properties. Client quite rightly told the insurance company that they could not normally recover the input tax as the property was exempt. Insurance company agreed to reimburse all costs including the VAT suffered.

Client has paid contractors to repair damage and has recovered full amounts paid (including VAT) from the insurance company.

Hope I have explained that clearly but now to the partial exemption calculations:-

A) Does the client include the VAT paid to the contractors in the exempt input tax for partial exemption calculations and bring in the insurance receipts gross (i.e. no output tax on these) or 

B) Exclude both the expenses and recoveries (which cancel each other out) from th calculations?

It could be the case that if the input tax is included in the partial exemption calculations and the client then passes the de minimis tests then all this input tax is recoverable and the client will benefit from the VAT included in the insurance claims from the insurance company.

I am sure that the VAT received from insurance company does not get included in Output Tax - if this was the case and the client did not pass the de minimis tests and the input tax was blocked then they would lose out.

Any guidance would be much appreciated before I phone the VAT helpline.




Replies (5)

Please login or register to join the discussion.

By shaun king
16th May 2017 21:05

Why would he include the Input tax in the Partial Exemption calculations as it isn't his input tax but the Input tax of the insurance company as the supply was made to them

Thanks (0)
Replying to shaun king:
By 2156806
17th May 2017 08:40

The contractor invoiced the client (the invoices are made out to the client) and then the client made a separate recovery from the insurance recovery so the Input Tax is for the client.

The supply was not made to the insurance company - they never received goods or services - these were supplied to the client's property.

Thanks (1)
Replying to 2156806:
By shaun king
17th May 2017 09:30

Your client had a policy with the insurance company indemnifying them against the cost of pre determined losses. When your client claimed the insurance company agreed to cover the losses.They could have instructed the builders but for ease got your client to.the supply was to the insurance company - who is invoiced is irrelevant it is who the supply is made to. Why would they do the work if the insurance company wasnt paying for it.

Thanks (0)
By DMGbus
17th May 2017 08:43

In partial exenption cases that I have dealt with in recent years when an insurance claim arises the insurance companies usually ask if the input tax can be recovered or in partial exemption cases what percentage of the input tax can be recovered.

The reason for this is that the insurance policy indemnifies the policyholder for the COST of the incident, which can be one of three things:

1. Cost ex VAT as all VAT fully recoverable by policy holder
2. Cost incl all the VAT as policy holder not VAT registered
3. Cost incl VAT less some of VAT recoverable (as in partially exempt policyholders)

Thanks (0)
Replying to DMGbus:
By 2156806
17th May 2017 09:27

Our client cant always reclaim Exempt Input Tax as they go over the limits and the % recovery of residual input tax changes each year - therefore we can't tell at the start of a year how much Exempt Input Tax would be recoverable (if any).

If we told the insurance company that say 50% was recoverable and then the calculations only show 20% our client would lose out and we would be doing them a disservice.

Thanks (0)
Share this content

Related posts