V6.276 Recovery

VAT recovery in the insurance sector

Many businesses involved in insurance will be partly exempt on the basis that they make a mixture of exempt and taxable or 'specified' (see below) supplies. General considerations pertaining to partial exemption are addressed in detail at V3.460. It will frequently be beneficial for businesses in the sector to agree a partial exemption special method (PESM). For discussion of PESMs, see V3.462. As a result of the complexities in the sector, HMRC has written and compiled a detailed partial exemption framework document jointly with the Association of British Insurers (ABI) which is intended to help insurers gain approval for their PESMs. This document is published on the gov.uk website. Partial exemption can cause particular complexity where finance and insurance businesses are involved in cross-border intra-entity flows as illustrated by the CJEU's judgment in Morgan Stanley (C-165/17) which is described at V3.464.

Specified supplies on which input tax may be recovered

Under the VAT (Specified Supplies) Order (SI 1999/3121), businesses have an entitlement to recover VAT attributable to certain supplies of insurance and insurance related services. These 'out of country' rules, are covered at V3.464. However, broadly HMRC accepts that input tax may be deducted on insurance and insurance related services when:


    •     the recipient of the supply

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