Insurance ― specific transactions

By Tolley

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

  • Insurance ― specific transactions
  • Endowment policies
  • Engineering insurance and inspection services
  • Friendly societies
  • Funeral plans
  • Guarantees and warranties
  • Medical / welfare funds
  • Insurance provided with goods / services
  • Protection and indemnity clubs (P&I)
  • Vehicle breakdown
  • Marine aviation and transport insurance (MAT)
  • Anti-avoidance

This guidance note provides an overview of specific types of insurance transactions and the associated VAT treatment. This note should be read in conjunction with the Insurance overview and Insurance intermediaries and agents guidance notes.

2006/112/EC , Art 135(1)(a); 2008/08/EC ; VATA 1994, Sch 9, Group 2; VATINS2000, VATINS5000; VAT (Input tax) (Specified Supplies) Order 1999, SI 1999/3121; De Voil Indirect Tax Service V4.121 (subscription sensitive); HMRC Notice 701/36 
Endowment policies

The sale of part-paid endowment policies are not exempt under the insurance exemption due to the fact that the risk covered by the underlying insurance remains with the original policyholder. However, this will be treated as a finance transaction so any consideration received will be exempt.

Engineering insurance and inspection services

Businesses may offer engineering insurance that is intended to protect large capital items of machinery against damage or faults. The insurer may also offer the customer an inspection service in connection with the insurance product which may be used to reduce claims or the level of cover offered.

If the inspection services are provided separately and are not incidental to the supply of the insurance, they may be liable to VAT at the standard rate. If they are supplied in connection with the insurance, then the business needs to ascertain whether a single composite supply of exempt insurance has been provided. Please see the Single or multiple supplies ― application of Card Protection Plan and Levob Verzekeringen guidance note for more information on what constitutes a single supply for VAT purposes.

Friendly societies

These types of organisations normally provide insurance against accident, sickness, redundancy, old age, etc. They are not for profit organisations and their insurance capital is derived from the payments made by their members.

If the payments made by the members are in exchange for the provision of

More on Exempt supplies: