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VATable supply to a VAT exempt client (insurance)

VATable supply to a VAT exempt client (insurance)

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 I have a client with the following situation: the company offers psychotherapist services and is VAT registered (sadly psychotherapists are not VAT exempt). The company sees patients that pay through insurance. So the company registers sale of say £100 and vat due £20, and raise an invoice for the insurance company for £120.

The insurance company refuses to pay the VAT element of the company's invoice, referring to the fact that insurance is a VAT exempt business. Does this mean that the psychotherapist company is set to pay VAT on that invoice as they can't reimburse it off the insurance company? 

I would be grateful for the opinions and references on further reading. 

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By MJShone
05th Mar 2021 16:36

The insurance company's problem is that it can't recover the VAT - but that's it's problem, not your client's problem. What would usually happen is that the insurance company would pay the whole bill and simply not recover the VAT. Or a split bill can be done and the VAT part billed to the individual.
Have you ever had to claim on insurance (eg car repairs)? Have you ever had to pay the VAT? I suspect the answer would be "no". The repairer would do a "VAT only" bill to the insured, but only if the insured is a VAT registered business. Otherwise the insurance company pays, VAT and all.

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Replying to MJShone:
RLI
By lionofludesch
05th Mar 2021 16:41

MJShone wrote:

Have you ever had to claim on insurance (eg car repairs)? Have you ever had to pay the VAT? I suspect the answer would be "no". The repairer would do a "VAT only" bill to the insured, but only if the insured is a VAT registered business. Otherwise the insurance company pays, VAT and all.

Damn your nimble fingers - MJ Shone !

Though you raise the point - is the insured a VAT registered business ?

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RLI
By lionofludesch
05th Mar 2021 16:40

No. The insurance company is talking rubbish.

If I needed to claim for repairs to my car, the garage would soon be on my case if the insurance company didn't pay the VAT.

Insurance being an exempt business is about the insurance company's sales, not its expenses.

Ask for the matter to be referred to someone who knows what they're talking about.

If they still won't pay up, take them to small claims court.

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Replying to lionofludesch:
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By Tanya Cornell
05th Mar 2021 16:48

that was my first thought exactly, if an insurance company was a supplier, then no VAT is to be claimed on their services (insurance) but I've never come across the situation when the insurance company-client would not pay VAT. This is an established relationship between the psychotherapist company and the insurance company (i.e. not just a one-off transaction), it only became an issue when the company reached VAT threshold.

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Replying to Tanya Cornell:
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By Matrix
05th Mar 2021 16:58

The client may need to review and update their contracts to include VAT if not already included.

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Replying to Tanya Cornell:
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By Paul Crowley
05th Mar 2021 17:59

Is the established relationship the problem?
Insurance company thinks he is not registered?

If not then Insurance company clearly needs staff training on VAT

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By Cheshire
05th Mar 2021 16:44

As the others say, its not about the status of the receiver or the service, your client is correct to invoice including VAT. I look after a VAT reg psychotherapist, never had an issue with getting full payment from an insurance company.

Ask then to point you to the relevant part of the vat legislation to defend their stance, they wont be able to.

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Replying to Cheshire:
RLI
By lionofludesch
05th Mar 2021 16:54

Cheshire wrote:

As the others say, its not about the status of the receiver of the service......

The insurance company isn't even the receiver of the service.

They're just paying for it.

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Replying to lionofludesch:
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By Cheshire
05th Mar 2021 16:59

Oops, yes, I was thinking as I was typing not to use the word 'receiver' - then got lost internet for a sec and got sidetracked.

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Replying to Cheshire:
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By Tanya Cornell
07th Mar 2021 13:11

Does your client manage to get 100% of the fee reimbursed by the insurer? the other issue is that my client charges more than insurer's maximum fee, apart from moving away from taking caseload from insurance, is there any other solution please?

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By lesley.barnes
05th Mar 2021 16:55

I'm not a VAT expert but on a simple level should the invoice not go to the client who pays it and then reclaims the cost of the physio which includes the VAT from their insurance company? I'm assuming that the clients are not being paid for through a company policy and the business they work for isn't VAT registered. If they work for a VAT registered business the business would pay the VAT and reclaim it.

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Replying to lesley.barnes:
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By Tanya Cornell
05th Mar 2021 17:09

Being on the insured side of medical claim, this is how it works: I get ill, go to the GP, he refers me to a specialist. I call my private medical insurance, they authorise my visit to a specialist and either recommend someone they have contract with or go with the one I chose. There is an upper limit of fee that the insurance company will pay to my specialist and if a specialist I chose charges more, I will pay the difference (never really happened in real life for me so far). When I see a specialist, he sends me a copy of invoice and he gets paid directly by insurance company so I don't deal with it myself.
I think it is only with travel insurance when you pay for your treatment abroad and then reclaim it from the insurance company later.

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Replying to Tanya Cornell:
RLI
By lionofludesch
05th Mar 2021 17:16

Tanya Cornell wrote:

Being on the insured side of medical claim, this is how it works: I get ill, go to the GP, he refers me to a specialist. I call my private medical insurance, they authorise my visit to a specialist and either recommend someone they have contract with or go with the one I chose. There is an upper limit of fee that the insurance company will pay to my specialist and if a specialist I chose charges more, I will pay the difference (never really happened in real life for me so far). When I see a specialist, he sends me a copy of invoice and he gets paid directly by insurance company so I don't deal with it myself.
I think it is only with travel insurance when you pay for your treatment abroad and then reclaim it from the insurance company later.

No - not necessarily so.

I've paid for my own treatment and claimed it back. Different situations and different companies may have different procedures. There's nothing wrong with that.

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Replying to lionofludesch:
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By Tanya Cornell
05th Mar 2021 17:24

that's interesting, I never had to pay myself and then claim from the insurance. Good to know! :-)

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Stepurhan
By stepurhan
05th Mar 2021 17:47

Ask the insurance company what insurance they are supplying to your client and how your client can claim on it.

When they respond that they are not insuring your client and they cannot claim, ask them why the VAT status of insurance is relevant then.

Not guaranteed, but sometimes walking an idiot through the flaws in their logic gets them to see the light.

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