Exemption ― insurance ― overview

Produced by Tolley
Exemption ― insurance ― overview

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Exemption ― insurance ― overview
  • VAT treatment of insurance products
  • What is insurance?
  • Block insurance products
  • Run-off business
  • Insurance claims
  • Legal costs
  • Loss adjusters and assessors
  • International transactions
  • VAT accounting
  • More...

This guidance note provides an overview of the VAT treatment of insurance products and should be read in conjunction with the Insurance ― specific transactions and Exemption ― insurance ― brokers and agents guidance notes.

VAT treatment of insurance products

Supplies of insurance products within the UK are exempt from VAT. Following the decision in Card Protection Plan to the effect that supplies of insurance by unauthorised insurers were exempt the UK legislation was amended to remove the restriction which limited exemption to supplies by specified bodies.

What is insurance?

There is no legal definition regarding what constitutes insurance. HMRC has devised a ‘working definition’ of the criteria to be used to establish what should be treated as insurance as a result of the Medical Defence Union case. The following has been extracted from VATINS2205:

“The case involved the Medical Defence Union (MDU) against the Department of Trade, and sought to establish whether the MDU were carrying on an insurance business. To resolve this it was necessary to determine if the contract between the MDU and its members was one of insurance. The judge decided that if there was to be a contract of insurance there had to be, on the occurrence of some event, a right to receive money or money’s worth (VATINS2210). This was expanded to include three specific points:

  1. the contract must provide that the insured will become entitled to something on the occurrence of some event;

  2. the event must be one which involves some element of uncertainty (VATINS2220); and

  3. the insured must have an insurable interest in the subject matter of the contract (VATINS2230).”

VATINS2110, VATINS2400; Försäkringsaktiebolaget Skandia [2001] STC 754; Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 544/2001

Certain funeral repayment plans can also be treated as insurance products and further information can be found in the Exemption ― burial and cremation guidance note.

Vehicle breakdown insurance is also an insurance product even though it is specifically excluded from the scope of FSMA.

Re-insurance products are also considered to be insurance.


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