The provision of insurance is exempt and insurance companies cannot recover input tax on their purchases. This can give rise to significantly increased costs to an insurance company, with purchases including advertising from UK suppliers and repair work from UK garages.
This VAT cost would be minimised if the insurance company established itself in a country outside the EC. It was announced in the Summer Budget 2015 that this opportunity would be closed by new legislation.
On 10 August 2016, HMRC announced that the new legislation would require repair services which were carried out in the UK for UK policyholders to be subject to UK VAT irrespective of whether the insurer belongs outside the EC. Insurance repairs which take place outside the EC will be outside the scope of UK VAT. This change will come into effect from 1 October 2016, six months later than announced in the Summer Budget.
An additional review is awaited in 2017 with respect to the supply of advertising and other services, which will continue to be zero-rated when supplied from the UK to insurance companies established in non-EC countries.
Insurance companies should be reviewing their position and their procedures to determine what amendment should be made, in respect of insurance repairs carried out within the UK and outside the EC.
For further information and help on VAT and the insurance industry, please contact the TaxDesk on 0845 4900 509 and ask for Kevin Hall.