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UK Closes Insurance VAT Loophole

by Jason Gorringe,, London

03 October 2016

On October 1, 2016, a new use and enjoyment provision was added into UK VAT law to ensure that repair services carried out in the UK for UK policyholders are subject to UK VAT, irrespective of whether the insurer belongs outside the EU.

The change is intended to tackle avoidance by a small number of insurers that have structured their arrangements to avoid incurring irrecoverable VAT by undertaking to repair uninsured goods via an offshore insurance entity.

Several other insurers had complained about this practice and the UK Government announced at Summer Budget 2015 that it would tackle this issue. In February 2016, draft legislation was published for the new use and enjoyment provision, and this legislation was intended to be implemented from spring 2016. However, the measure was brought forward to allow taxpayers more time to adapt to the change.

The measure will ensure that such services are subject to UK VAT when they are effectively used and enjoyed in the UK. This now means that an offshore recipient of these services, such as an insurer, will be charged UK VAT on a service that is currently outside its scope. It will no longer be treated as a business to business transaction falling under the general rule, which puts the place of the supply where the recipient belongs.

It will also introduce a mirror provision so that repair services that would have been treated as supplied in the UK, but are used and enjoyed outside the EU, will now be seen as outside the scope of UK VAT.

TAGS: compliance | tax | business | VAT legislation | VAT cross-border transactions | law | insurance | United Kingdom | offshore | legislation | services | VAT compliance matters

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