Commentary

V6.274 Liability of supplies

Part V6 Business by business

V6.274 Liability of supplies

V6.274 Liability of supplies

Insurance and reinsurance

VATA 1994, Sch 9 Group 2, item 1 provides the basis for exemption for—

“Insurance transactions and reinsurance transactions.” This provision is also addressed in detail at V4.121–V4.122.

Neither insurance nor reinsurance is defined by statute. The terms must therefore be understood in the context of general law. An important case for establishing the nature of insurance is Medical Defence Union [1979] 2 All ER 421. Despite considerable time having elapsed since the case, it continues to be referenced in HMRC's manuals (VATINS2205). The decision established that the following elements are necessary for a contract of insurance to exist—

  1.  

    —     the contract must provide that the insured person will become entitled to something on the occurrence of some event

  2.  

    —     the event must be one which involves some element of uncertainty

  3.  

    —     the assured must have an insurable interest in the subject-matter of the contract.

Following the ECJ's decision in Card Protection Plan (C-349/96) the exemption cannot be restricted to insurance provided by “authorised” insurers as was previously the case under UK law. It is now open to all who make such supplies of insurance or reinsurance, even if those supplies are unlawful.

The liability of supplies in several common areas of difficulty are considered below.

Engineering insurance

Engineering insurance to cover the risk that large items of plant, machinery, structures etc malfunction will generally be covered by the insurance exemption. Insurers may provide inspection services in connection with such insurance. The VAT treatment of such inspection services when

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