Normally the terms insurance and VAT recovery do not go hand in hand. Insurance is VAT exempt under Schedule 9, Group 1 of the VAT Act 1994. Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU.
Supplies of insurance that allow VAT recovery
The Specified Supplies Order 1999/3121 gives a VAT recovery right in relation to supplies of insurance intermediary services such as brokers when the customer is based outside the EU. Additionally, in relation to intermediaries, a right to reclaim VAT on business costs exists when they arrange a supply of insurance to a non-EU person. In practical terms, this means that many UK based insurers and agents and brokers with an international aspect to their customer base do have the right to partial recovery.
If such supplies are made the VAT recovery position should be considered, particularly where these form a material portion of the business’ supplies.
Are my customers outside the EU?
It is easy to overlook that some European locations are not part of the European Union. Supplies of insurance or insurance intermediation services could still provide a VAT recovery right. For example:
• The Canary Islands
It is worth reviewing customer location or the location of underlying supplies if they involve these locations as a potential VAT recovery benefit might not be recognised.
Insurance for export of goods to outside the EU
Supplies of insurance related to export of goods from the EU may also allow VAT recovery. Where:
• goods are being exported by the recipient of the insurance;
• insurance is directly linked to the specific goods being exported, and
• the insurance covers the risks of the person who owns the goods or is responsible for their export.
This would also be a supply of insurance specified to allow a right to VAT recovery.
VAT recovery and customer location may provide significant opportunities to companies offering insurance. The interaction of location and the partial exemption rules adds complexity and this may be when professional expertise becomes invaluable in realising an opportunity. CVC has assisted many businesses in this sector to improve their position in relation to VAT whilst also ensuring that this is within a compliant, logical and workable framework.
If you would like to discuss this area please contact Dean Carey or Robert Thorpe on 01206 321029.