Can I Reclaim Insurance Premium Tax On My VAT Return?

It’s crucial to figure out who gets supplies made in conjunction with or in payment of insurance claims since this will decide who has the right to claim any VAT charged on those supplies as input tax. In paragraphs 5.2 to 5.5 of this section, you’ll find information on deciding who receives specific supplies made in connection with insurance claims.

Supplies made to the insured party

Any VAT incurred on deliveries of claims-related products or services to the insured party when the claim pertains to their VAT-registered firm may be deducted as input tax, subject to standard conditions.

When the insured party is able to recover the VAT charged on such supplies from us, the insurer is usually only responsible for paying the net amount due under the insurance claim (minus any excess payable by the insured party).

Supplies made to the insurer

The deductibility of any VAT incurred on supplies of claims-related goods and services to the insurance is subject to the partial exemption rules and the recoverable amount computed using the insurer’s partial exemption method.

Any VAT on costs incurred in relation to an individual claim (for example, legal costs incurred where the insurer is in dispute with the policyholder over the legitimacy of the claim) will be directly attributable to the associated supply of insurance, and the recoverability of any VAT charged will be determined by whether or not the relevant supply of insurance provides an input tax deduction right.

Goods supplied to the insurer for transfer to the insured party

In some cases, goods are provided to an insurer for the purpose of transferring them to the insured party in the event of a claim. In this case, the insurer may elect to claim the VAT charged on the products as input tax and account for output tax on the cost price when the goods are delivered. Alternatively, the insurer may choose not to claim the VAT paid and therefore avoid having to account for output tax when the products are delivered to the insured party.

Legal costs

The supply of legal services is to the insurer when an insurer acquires legal services in connection with, for example, policy interpretation or a dispute with a policyholder. However, supply of legal services in connection with subrogated claims (that is, claims in which the insurer exercises its right to prosecute or defend a claim against a third party on behalf of the insured party) are made to the insured party rather than the insurer.

Loss assessment and claims handling services

The worth of any loss in an insurance claim is frequently assessed by loss adjusters and other professionals. They could also be hired to deal with insurance claims (information on the VAT treatment of such services can be found in paragraph 9.3).

In most cases, loss adjusters and other specialists are hired by the insurer to act on their behalf, and their services are provided to the insurer rather than the insured party filing the claim.

Loss assessors, unlike loss adjusters and other similar professionals, are usually appointed by and serve in the best interests of the insured party, and their services are thus provided to the insured party rather than the insurer.

Indemnification by way of replacement goods or services

When a claim is settled through replacement goods or services rather than financial indemnification, the supply position is determined by the terms of the contractual agreements between the parties.

In most cases, a third-party supplier’s supply of replacement goods or services is considered to be made to the insured party. However, the specifics of the case, including the terms of the insurance contract, may require that replacement products or services be sent to the insurer rather than the insured party in some cases.

For information on recovering VAT on these supplies, see paragraph 5.1, and for information on the VAT treatment of services provided in settlement of a claim, see paragraph 8.2.4.

Financial indemnification

No supply has occurred for VAT purposes if an insurer settles an insurance claim by giving money to the covered party as financial indemnification. As a result, the money paid by the insurer in payment of the claim is not subject to VAT.

Surrender of goods following an insurance claim

In some cases, rather than paying the cost of having damaged goods repaired, insurers choose to replace or compensate for them under an insurance claim. The damaged products will be handed to the insurer in these situations, and the insurer will be free to sell them and keep the revenues.

Whether or not the insured party would have been liable to account for VAT on the sale of the goods will determine the VAT treatment of the consideration received by the insurer in relation to these items. The insurer will have to do the following:

  • determine the VAT status of the products that have been surrendered (for example, whether they were cars on which input tax recovery was blocked)
  • be able to cross-reference this data with the disposal of each item to determine whether VAT must be accounted for

Disposals on which the insurer will be required to account for VAT

Insurers will be forced to account for VAT on the sale of surrendered goods that would have been subject to VAT if the insured party had sold them themselves. When selling items that meet the following criteria, a VAT-registered person is required to charge VAT.

  • Due to partial exemption restrictions, only a fraction of the VAT was recovered.
  • There was a VAT recovery right, but no VAT was collected because the company didn’t have a proper tax invoice.

Disposals on which the insurer will not be required to account for VAT

Insurers will not be required to account for VAT on goods surrendered by insured parties who are not VAT registered or who are VAT registered but would not have been required to account for VAT on the sale of the goods, for example, because input tax recovery was blocked or the goods were purchased from someone who was not required to charge VAT, if the following conditions are met. In these instances, the disposal of the goods is not considered a supply for VAT purposes, and hence is not subject to VAT. These are the conditions:

  • The products are in the same condition as when they were taken into the insurer’s control at the time of disposal.
  • The objects in the case of second-hand products are tangible, transportable property that can be used as is or after repair.

Disposals by insurers of cars surrendered under an insurance claim

While the advice offered in paragraphs 5.6.1 and 5.6.2 applies similarly to cars, there are additional laws governing the recovery of VAT on automobiles, making it critical for insurers to determine the VAT status of surrendered vehicles.

Insurers will not have to account for VAT on the sale of used cars surrendered under insurance claims where the insured party is VAT registered but input tax recovery is blocked. Because VAT is recovered by the dealer on automobiles bought for resale, they will be forced to account for VAT on the disposal of new cars damaged while in dealer’s stock.

Cars that have been written off and received as scrap metal by the insurer should be treated as any other goods, with VAT accounted for on the scrap value if the insured party was required to account for VAT. This is true regardless of the vehicle’s salvage category.

The Margin Scheme on second-hand cars and other vehicles (VAT Notice 718/1) contains more information on the VAT treatment of second-hand cars and other Margin Scheme goods.

VAT liability of insurance transactions

VAT is not charged on insurance transactions. Normally, VAT cannot be reclaimed on goods and services purchased to make exempt supplies; for additional information, see paragraph 7.1.

Some premiums earned under insurance contracts are subject to IPT. It’s important not to mix up IPT and VAT; they’re two completely different taxes. For VAT reasons, the word ‘insurance transaction’ differs from the term ‘insurance contract’ for IPT purposes. IPT, unlike VAT, is not refundable. Notice IPT1: Insurance Premium Tax contains more information on IPT.

What insurance is

There is no formal definition of insurance, but earlier judicial decisions that have explored the essential character of insurance can provide help.

In general, if an activity requires the provider to be authorised as an insurer under the terms of the Financial Services and Markets Act 2000, it is considered insurance for VAT reasons (FSMA).

Furthermore, despite the fact that certain funeral plan contracts are not regulated as insurance under the FSMA insurance regulatory rules, HMRC accepts that they constitute insurance (and thus exempt from VAT). In paragraph 3.5, you’ll find further information on funeral plans.

Even though providers are exempt from the FSMA’s requirement to be authorised, vehicle breakdown insurance is nonetheless considered insurance. In paragraph 3.6, more information about vehicle breakdown services is provided.

Reinsurance

A reinsurance contract is one in which an original insurer is compensated by a reinsurer for a risk that the original insurer has taken on. Unless otherwise specified, all references to insurance in this notice should be interpreted to include reinsurance.

The regulation of insurance

The Financial Services and Markets Act (FSMA) governs the regulation of financial services in the United Kingdom, including insurance. The FSMA took effect on December 1, 2001, and replaced the Insurance Companies Act of 1982, which had previously regulated insurance.

The FSMA makes it illegal for UK businesses to enter into insurance contracts without being authorized to do so (with the exception of certain bodies specifically granted exemption from the need for authorisation). The Financial Conduct Authority is in charge of regulating businesses and unincorporated organisations under section 19 of the FSMA (FCA).

The FSMA (Regulated Activities Order) 2001 establishes the activities that are subject to the Act’s regulations. There are various types of insurance risks, each with its own set of regulatory requirements. Insurers can be authorized to insure all types of risks or only certain types of risks.

An insurance firm is prohibited from engaging in activities in the UK or elsewhere that are not related to or for the purposes of its insurance business under section 19 of the FSMA.

Insurance supplied by unauthorised insurers

Until March 1997, the VAT exemption was only available to enterprises that were authorised (or exempted from being authorised) under UK regulatory laws. However, in the case of Card Protection Plan Ltd (CPP), the Court of Justice of the European Union (CJEU) concluded that the UK could not limit its VAT exemption to authorised insurers.

This means that insurance provided by unlicensed insurers is VAT-free. Such businesses may be prosecuted under the FSMA, and we may report matters to the FCA if they come to our attention.

Insurance transactions affected by holders of block policies

The CJEU’s ruling in CPP has ramifications for block insurance policyholders who make supplies. CPP was the owner of a block insurance policy, and the insurer gave them permission to arrange for their clients to be covered by the policy. CPP was found to be supplying insurance transactions to their consumers despite not being an insurer themselves, according to the CJEU.

We regard supplies made by block policyholders as insurance transactions for the purposes of the VAT exemption, notwithstanding the fact that they would not be considered insurance for regulatory reasons, following the CJEU ruling.

This means that when block policyholders perform insurance transactions, they are acting as principals rather than as intermediaries arranging insurance supply.

What a block policy is

The CJEU coined the phrase “block policy” to describe CPP’s position. We’re aware that the word might refer to a variety of policies in the insurance market. Other terminology, such as’master policy,’ can also be used to denote the type of policy possessed by CPP. It’s crucial to understand what we mean when we use the term ‘block policy’ in relation to the CJEU decision in CPP and its broader implications for the insurance exemption in this area.

  • The block policyholder and the insurer have an agreement that allows the block policyholder to obtain insurance coverage under specified conditions.
  • The block policyholder obtains insurance coverage for third parties from the insurer in their own name.
  • The insurance is obtained through a contractual connection between the block policyholder and third parties.
  • When it comes to providing insurance to third parties, the block policyholder takes the place of the insurer.

In the industry, this type of policy is very common. A block policy is typically taken out by a supplier of goods or services to cover a number of small transactions over a set period of time. For example, a removal company might take out a block policy to provide its customers with insurance against the risk of damage to their belongings during a house move.

Block or’master’ plans are also used by membership groups to obtain insurance coverage on behalf of their members. For example, a pony club may utilize a block policy to provide coverage against the risk of damage or liability for another’s injury when participating in equestrian activities.

A block policy may cover both the risks of the block policyholder and those of their customers. For example, a moving company may purchase a policy to cover both its own risk of damaging its customers’ property as well as its customers’ risk of damage to their property for which the moving company is not responsible.

The ‘policy holder’ on a block insurance policy is typically the business that takes out the policy, with the ‘persons insured’ being the policyholder’s customers. The contract may refer to the ‘persons insured’ as the company that purchased the policy and its clients, rather than mentioning each individual customer.

The policyholder pays the insurer a premium based on the previous year’s trading, with changes made at the end of the year when the precise number of people covered under the policy is known.

VAT implications for supplies made by block policyholders

Instead of providing insurance-related services as intermediaries, block policyholders provide VAT-exempt insurance transactions as principals.

This means that if you’re a block policyholder, rather than just the amount of any commission or charge you receive, the entire consideration you receive in respect of your own services and the acquisition of insurance cover for your customers becomes income of your firm.

This could affect your partial exemption method’s calculation of recoverable input tax (see Partial exemption method) (VAT Notice 706).

There could also be ramifications for the VAT treatment of insurance transactions involving other goods or services, as indicated in paragraph 4.6.

Can I claim back IPT on my VAT return?

Insurance Premium Tax (IPT) is a fee charged by insurers in addition to the cost of your insurance policy. Depending on the sort of insurance you choose, you may be charged a cost of 12 percent or 20%.

In the last two days, two different consumers have inquired about claiming IPT.

IPT is charged at a rate of 20% when you buy a mechanical item that comes with an insurance policy.

It is presumed that because this rate is the same as the VAT rate, it is VAT that can be claimed back.

It isn’t, and it isn’t possible to claim it.

IPT is an additional insurance expense that should be added to the insurance cost to get the entire cost of insurance.

Despite being separated on your invoice or receipt, the two costs do not need to be separated in your accounts because they are one cost.

This is due to the fact that insurers are required to disclose the rate and amount of IPT.

Insurance and the IPT you are charged are permitted business expenses that can be deducted from your net profit by deducting them from your turnover.

Insurance companies that must charge IPT must register with HMRC and file returns every three months.

Can you claim VAT on insurance policy?

On business and personal lines policies, premiums are not subject to VAT. Please note, however, that tax is still due in the form of Insurance Premium Tax (IPT).

  • a higher premium – for trip insurance, insurance for mechanical or electrical items, and some car insurance

The IPT rate is lower than the VAT rate, and it is set at 12% by default. Insurance premium tax, unlike VAT, cannot be refunded and, like other taxes, is subject to change. The higher rate has been set at 20%.

  • Premiums for risks that are located outside of the United Kingdom may be subject to equivalent levies imposed by other nations.

On the UK Government website, there is a page dedicated to Insurance Premium Tax. Here’s the link to the page.

Do I have to pay insurance premium tax?

Is it necessary for vehicle insurance customers to pay Insurance Premium Tax? Yes, consumers’ premiums include IPT, and any increases will have a direct impact on the amount they pay. It is not, however, a flat fee that applies to all policies: IPT has the greatest impact on those with the highest premiums.

Who is liable for insurance premium tax?

It is borne by the policyholder, but the insurer collects and pays it to HMRC using three-month accounting periods. Although it is common to allude to IPT being charged in terms of a premium, this is not technically correct.

Who pays the insurance premium tax?

The tax is paid directly to the government once your insurance provider collects the premium from you. IPT is now available in two rates. The first is that home, car, and pet insurance all come with a regular 12 percent surcharge.

Can you claim back VAT on business insurance?

Once your company is VAT-registered, you must charge VAT on all of your products and services and then remit the money to HMRC. On the plus side, being VAT registered allows you to reclaim VAT on all goods and services your company purchases, effectively lowering your costs by 20% compared to when your company wasn’t registered for VAT.

If your VAT accounts are difficult, it’s a good idea to consult a tax expert before filing a claim. HMRC can check your business accounts and levy severe fines if you get it wrong.

Claiming VAT back – what you can claim for

When it comes to collecting VAT back, the golden rule is that you can only claim on items and services that are utilized solely and exclusively for your business. This means that office supplies, computers and equipment, transportation charges, and accounting services all count if they are used purely for the purpose of your company.

You can only claim back a proportion of the VAT equal to the amount used by your business if it’s partially for personal use, such as home broadband that’s also used by your business.

Goods and services for personal use – You cannot claim VAT back if you ‘place anything via the firm’ but intend to use it yourself, such as stationery or a new computer. In fact, the expense isn’t deductible as a business expense, and it can’t be used to offset corporation tax.

Goods and services used in the production of VAT-free goods and services – If your business purchases materials or services that it then uses to generate new VAT-exempt products and services, such as insurance services or online lottery games, you will not be able to claim VAT back on those purchases.

Business entertainment costs – These are any expenses incurred by your company for entertaining non-employees. This includes entertaining clients, but it might also have an impact on events like Christmas parties if employees are allowed to bring friends.

Second-hand products — When it comes to reclaiming VAT, some goods purchased under the Margin and Global Accounting Scheme have different criteria.

That’s not all, though. There are restrictions that govern how much VAT you can reclaim on a variety of products and services, including vehicles, petrol, food, and travel expenses.

Claiming back VAT on previous costs

The good news for small businesses registering for VAT is that your first VAT Return can be used to claim back VAT charges your company has already spent. You only get one chance to claim back previous expenses, and there are some restrictions.

Capital expenses – All capital expenses, such as computers or equipment, purchased within the preceding four years prior to the date of VAT registration, are eligible for a VAT refund. The goods must either be still owned and used by your company or have been used to create a new product that is still owned and used by it.

Services – You can claim VAT back on services such as accounting and legal services that were purchased by the business within the previous six months of VAT registration.

You must keep detailed records, such as VAT receipts, and include the total amount of VAT refunded in your first VAT return.

Personal use and claiming back VAT

VAT can be claimed back on products and services that are shared between the firm and utilized individually by small business owners. You can claim a part of VAT on services like utilities and broadband if you run your business from home.

For example, if your business is run from home and utilizes half of your household’s bandwidth and your home office takes up one tenth of your home, you can claim back 50% of the VAT on the broadband service and 10% of the VAT on home utility bills like gas and electricity.

Claiming back VAT on travel and food

When an employee of your business travels solely for business purposes, such as visiting a customer or attending a trade show, you can claim VAT back. This includes VAT on transportation, hot food, and lodging, such as hotels.

However, because most public transportation is VAT-free, there will be no refund. Travel expenses to and from work are not eligible for VAT reimbursement.

Claiming VAT back on vehicles

Whether it’s a commercial vehicle like a van or an executive car, your company can reclaim the VAT it paid when purchasing a new vehicle. The car must be used strictly for business purposes. You must be able to demonstrate to HMRC that the car is not available for personal use, such as overnight parking in a secure garage linked to your business. You might be eligible to get VAT refunded on automobiles that are meant to be used as taxis, self-drive rentals, or driving lessons.

With rare exclusions, you can only claim 50% of the VAT amount returned when you lease an automobile. If the vehicle was leased to replace an off-the-road company vehicle, you can claim a VAT refund of 50%. If the rental time is less than 10 days and the car is utilized solely for business, you can claim 100% of the VAT portion back. Similar to buying a new automobile for the business, you can claim back 100 percent of the VAT on a lease car provided it is only utilized for work and rendered unavailable for personal use.

VAT-rated expenses incurred in maintaining company vehicles, such as servicing costs or the installation of a satnav in a company delivery van, can be claimed in full.

Claiming VAT back on fuel

When claiming VAT back on fuel, the golden rule applies: it must be utilized only for commercial purposes. Getting your gasoline VAT refunded, on the other hand, can be a little more difficult:

Claim 100% of the VAT – You can reclaim 100% of the VAT paid on any gasoline, including personal usage, but you must pay a fuel scale charge that is unique to your vehicle type. You can calculate the cost using the government’s Fuel Scale Charge tool.

Claim a full refund on business gasoline — Keep a journal of business mileage and claim VAT back on the quantity of fuel consumed for the mileage recorded.

Don’t claim VAT — This is a good choice for low-mileage commercial vehicles where the fuel scale charge is higher than the VAT claimed. You cannot claim VAT back on fuel used by any of your business vehicles if you do not claim VAT back on fuel used by one of your business vehicles.

Keeping VAT records

When it comes to claiming back VAT, you’ll need a lot of paperwork and meticulous record-keeping. You must be able to clearly demonstrate the amount you’ve paid using one of the following methods:

VAT invoices — These show the VAT rate and amount you paid to a VAT-registered company, together with the VAT number.

Retail receipts – Although retail receipts do not always include VAT, they can still be utilized if the entire purchase value is less than £250. You’ll have to figure out how much VAT you’ll have to pay.

Transaction proof – You can claim VAT even if you don’t have a receipt. You’ll need proof of purchase, such as bank statements that demonstrate the amount of the transaction between your company and the VAT-registered company, as well as any other supporting documents. You must also show that the transaction was made solely for the purposes of your company.

How to calculate how much VAT to claim back

Filling out a VAT Return – generally every quarter – is required to claim back VAT. If you’re filling out the VAT Return form on HMRC’s website, you’ll need to know how much VAT your firm was charged for products and services you can claim VAT on during that three-month accounting period. Input VAT is the term for this.

You must also figure out how much VAT your company charged on services and goods over the same time period, which is referred to as output VAT.

You’ll need to figure out the difference between the amount of VAT your firm charged and the amount of VAT it paid when filling out your VAT Return.

For example, if your company charged £20,000 in VAT on its goods and services (output VAT) and £4,000 in VAT on the products and services it purchased (input VAT), the VAT computation would be:

If your company charged £8,000 in VAT on its goods and services but paid £12,000 in VAT on the goods and services it bought, the VAT calculation would be as follows:

Your business can claim £4,000 in VAT from HMRC by subtracting £12,000 (input VAT) from £8,000 (output VAT).

How to get paid a VAT refund

HMRC will automatically calculate if you are due a VAT refund for that accounting period if you complete your VAT Return online. HMRC usually refunds any VAT within 10 days after you submit your VAT Return.

Is insurance premium tax refundable?

The first and most crucial thing to remember is that the relevant tax rate must be paid based on the insurance’s active date. Unfortunately, you will not be able to prepay your insurance in order to avoid the tax adjustment. We must begin collecting the tax at a rate of 10% for any insurance policy that begins on or after June 1, 2017, which means that any caravan insurance policy with a start or renewal date on or after June 1, 2017, as well as any changes to a policy involving an additional premium, with an active date for the change on or after June 1, 2017, will all be subject to an IPT of 12%.

If you pay an additional premium after the start date on a policy that began before that date and then cancel the policy that is susceptible to a refund, there are sophisticated criteria that apply. You will have paid two rates of tax in this circumstance, and if you are due a premium refund, you will also be due a refund of IPT. We will do our best to ensure that you do not lose money when calculating your refund, but you should be aware that we are not allowed to refund Insurance Premium Tax at a higher rate than you paid it. If at all possible, we will compute the tax refund proportionally.

Are insurance premiums tax deductible UK?

In the United Kingdom, there is a lot of debate about whether or not private health insurance premiums are tax deductible. Yes, you can deduct medical insurance premiums from your taxable income. There are, however, some conditions that must be met in a tax-efficient manner.

The premiums paid by a corporation for an employee’s or director’s private medical insurance are deductible as business costs, and the company benefits from tax cuts on such expenses. Employees and directors who purchase private medical insurance will have their premiums taxed and subject to national insurance (NI).

Is VAT payable on insurance rent?

Now that we’ve established that the cost belongs to the landlord, we need to see if the property has been designated for taxation. This should be an easy question to answer because, if taxation was chosen, VAT would have been applied to the rents.

It should be highlighted that the recharge of insurance, rates, or utilities is actually an additional supply of rent, independent of the tax status.

Because the landlord is not an insurer, local government, or utility firm, it cannot be viewed as an onward supply of insurance, rates, or utilities.

Because the recharge is basically rent under a different name, any recharge (of insurance, rates, or utilities) will be liable to VAT if the option to tax has been selected to add VAT to the primary rents.

In contrast, if there is no option to tax, the recharge is VAT-free (i.e. it is exempt).