Sunday Express Skeleton 24Th November...
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Insurance Claim Question Regarding Vat On Invoice
Long story short (and its been a LONG time since I have visited here!!! So apologies folks!).
Husband is a builder. He subcontracted a plumber to carry out some work on a project he was working on.
Plumber didn't connect a pipe properly. Leak caused damage running in to thousands and the location of leak couldnt be found straight away.
Plumber has accepted liability
We have raised an invoice for all the remedial work that we had to do (plumber was on holiday in USA at time!). Our invoice is for time to locate the leak, damaged to floors trying to find the pipe, and then repairing it all and relaying flooring etc) Our invoice is to the plumber for the cost +vat.
He is claiming for the costs using his Public Liability policy.
The Loss Adjustors have advised that they cannot pay the vat element on our invoice and that we can reclaim it from HMRC.
This makes no sense to me - as we are invoicing for a service provided and thus have to CHARGE the vat. We haven't paid it to HMRC as we haven't received payment for the invoice.
Surely it is the PLUMBER who has to reclaim the vat from HMRC?
I am trying to argue the point. That we cannot issue a ZERO rated vat invoice nor is there anyway we can reclaim the vat as we haven't paid it out for our invoice.
I found this on HMRC - but Loss Adjustor is still arguing that I am wrong.
http://
Loss adjustor read the link above and responded with:
I am afraid that you are confusing first party and third party claims.
The section on the HMRC applies where an Insured is claiming for damage to his works - the same section should be read replacing the words 'policy holder' for 'claimant' when we are concerned with a third party loss.
"The Insured cannot recover the VAT element because the service has not been provided to them - the service has been provided to you, the Claimant, and therefore, you are the appropriate party to recover the VAT. If we were concerned with a first party claim, i.e Contract Works, the Insured would have received the benefit of the repairs and would then be in a position to reclaim the VAT. "
What am I not getting here? Am I being thick? Yes the Plumber provided a service to us - but he didn't repair the leak nor repair all the damaged flooring nor have to buy new tiles. We did! The receipts for materials do form part of our vat submission but I have to charge the vat on the work done for labour and materials! Someone has to pay that vat surely!!
Husband is a builder. He subcontracted a plumber to carry out some work on a project he was working on.
Plumber didn't connect a pipe properly. Leak caused damage running in to thousands and the location of leak couldnt be found straight away.
Plumber has accepted liability
We have raised an invoice for all the remedial work that we had to do (plumber was on holiday in USA at time!). Our invoice is for time to locate the leak, damaged to floors trying to find the pipe, and then repairing it all and relaying flooring etc) Our invoice is to the plumber for the cost +vat.
He is claiming for the costs using his Public Liability policy.
The Loss Adjustors have advised that they cannot pay the vat element on our invoice and that we can reclaim it from HMRC.
This makes no sense to me - as we are invoicing for a service provided and thus have to CHARGE the vat. We haven't paid it to HMRC as we haven't received payment for the invoice.
Surely it is the PLUMBER who has to reclaim the vat from HMRC?
I am trying to argue the point. That we cannot issue a ZERO rated vat invoice nor is there anyway we can reclaim the vat as we haven't paid it out for our invoice.
I found this on HMRC - but Loss Adjustor is still arguing that I am wrong.
http://
Loss adjustor read the link above and responded with:
I am afraid that you are confusing first party and third party claims.
The section on the HMRC applies where an Insured is claiming for damage to his works - the same section should be read replacing the words 'policy holder' for 'claimant' when we are concerned with a third party loss.
"The Insured cannot recover the VAT element because the service has not been provided to them - the service has been provided to you, the Claimant, and therefore, you are the appropriate party to recover the VAT. If we were concerned with a first party claim, i.e Contract Works, the Insured would have received the benefit of the repairs and would then be in a position to reclaim the VAT. "
What am I not getting here? Am I being thick? Yes the Plumber provided a service to us - but he didn't repair the leak nor repair all the damaged flooring nor have to buy new tiles. We did! The receipts for materials do form part of our vat submission but I have to charge the vat on the work done for labour and materials! Someone has to pay that vat surely!!
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"Subject to the normal rules a VAT registered policy holder may treat any VAT incurred on the supply as input tax. The insurer will normally pay the policy holder compensation exclusive of VAT. The policy holder will pay the supplier the tax and recover it as input tax."
Seems pretty straightforward to me, Nosh
Because you are VAT registered, you charge the plumber plus VAT.
The insurers pay him (the policyholder) exclusive of VAT.
If the plumber is registered, he reclaims the tax as input.
If he's not registered, then he would suffer the loss of VAT the same as when an ordinary punter (non-registered) pays you for a job.
Seems pretty straightforward to me, Nosh
Because you are VAT registered, you charge the plumber plus VAT.
The insurers pay him (the policyholder) exclusive of VAT.
If the plumber is registered, he reclaims the tax as input.
If he's not registered, then he would suffer the loss of VAT the same as when an ordinary punter (non-registered) pays you for a job.
thank you Builder.. thats exactly what I thought!!!
They are not having any of it but I can't back down on this! The vat money is not OURS.. Its HMRCs and needs paying!!!
I dont really understand what he means when he says "The service has been provided to you, the Claimant"... uh no... We provided the service of repair work and the Claimant is the policy holder surely!!!!
They are not having any of it but I can't back down on this! The vat money is not OURS.. Its HMRCs and needs paying!!!
I dont really understand what he means when he says "The service has been provided to you, the Claimant"... uh no... We provided the service of repair work and the Claimant is the policy holder surely!!!!
The explanation given by the loss adjuster makes no sense to me either. I think both you and The Builder are correct in your interpretation.
The claimant and policyholder is the plumber. You provided the service to the claimant and have to charge VAT on the services you provide.
Perhaps the plumber is not VAT-registered and is miffed at the prospect of having to stump up for what is essentially an 'uninsured loss' - the VAT element - not that it changes anything.
The claimant and policyholder is the plumber. You provided the service to the claimant and have to charge VAT on the services you provide.
Perhaps the plumber is not VAT-registered and is miffed at the prospect of having to stump up for what is essentially an 'uninsured loss' - the VAT element - not that it changes anything.
Ok so reply No1 from loss Adjustor (acting on behalf of the plumber) states:
Dear Natasha
I am afraid that you are confusing first party and third party claims.
The section on the HMRC applies where an Insured is claiming for damage to his works - the same section should be read replacing the words 'policy holder' for 'claimant' when we are concerned with a third party loss.
The Insured cannot recover the VAT element because the service has not been provided to them - the service has been provided to you, the Claimant, and therefore, you are the appropriate party to recover the VAT. If we were concerned with a first party claim, i.e Contract Works, the Insured would have received the benefit of the repairs and would then be in a position to reclaim the VAT.
I trust that this clarifies the position.
And Email No 2: because I tried to push this further and asked more questions!
No, Mr Plumber is the Insured. He is the Policyholder.
And YOU are making a claim against Mr Plumber and/or his insurance company. Therefore YOU are claiming for damages in relation to the escape of water. They will therefore be considered to be the Claimant for the purpose of this action. .
Dear Natasha
I am afraid that you are confusing first party and third party claims.
The section on the HMRC applies where an Insured is claiming for damage to his works - the same section should be read replacing the words 'policy holder' for 'claimant' when we are concerned with a third party loss.
The Insured cannot recover the VAT element because the service has not been provided to them - the service has been provided to you, the Claimant, and therefore, you are the appropriate party to recover the VAT. If we were concerned with a first party claim, i.e Contract Works, the Insured would have received the benefit of the repairs and would then be in a position to reclaim the VAT.
I trust that this clarifies the position.
And Email No 2: because I tried to push this further and asked more questions!
No, Mr Plumber is the Insured. He is the Policyholder.
And YOU are making a claim against Mr Plumber and/or his insurance company. Therefore YOU are claiming for damages in relation to the escape of water. They will therefore be considered to be the Claimant for the purpose of this action. .
This is just the kind of bureaucratic twaddle that we all have to deal with. Technically, this is a "non-supply" as far as the insurers are concerned, so they absolve themselves from any VAT implications.
Back in the real world, this is a technicality. As a registered trader, you must raise a VAT invoice .......... the invoicee pays you including VAT. What happens next is the plumber's matter, not yours.
The involvement of insurance is of no concern to you. You have done the work. You are legally obliged to charge VAT. The plumber is legally bound to pay it in full.
The fact that he has to involve insurers is clearly not your problem.
Back in the real world, this is a technicality. As a registered trader, you must raise a VAT invoice .......... the invoicee pays you including VAT. What happens next is the plumber's matter, not yours.
The involvement of insurance is of no concern to you. You have done the work. You are legally obliged to charge VAT. The plumber is legally bound to pay it in full.
The fact that he has to involve insurers is clearly not your problem.
Hmm, I'll think about it - unless The Builder or Peter Pedant gets back to you first. Needs some research, as I'm loathe to assume a loss adjuster is right just because he is a loss adjuster.
Suppose another contractor had been involved in putting right all the work - commissioned by the policyholder and his loss adjuster. I'm trying to get my head around whether the loss adjuster would still be saying the same thing.
Suppose another contractor had been involved in putting right all the work - commissioned by the policyholder and his loss adjuster. I'm trying to get my head around whether the loss adjuster would still be saying the same thing.
I think I agree with you all.. and we are all right.. But I'm struggling to get my point across and the longer the wrangling goes on - the longer we are out of pocket by our £6000!!!!
Grrrr
If anyone can give me some confirmation that we are all right.. then I would be more than happy to go back to LA and tell them I have 'sought advice'
I'm loathe to call HMRC cos I doubt they will know what to say either! They are all about 12 years old there! ;-)
Grrrr
If anyone can give me some confirmation that we are all right.. then I would be more than happy to go back to LA and tell them I have 'sought advice'
I'm loathe to call HMRC cos I doubt they will know what to say either! They are all about 12 years old there! ;-)
yup I have read VIT 13500 and that comes up first if you google insurance claims and VAT
I think you claim off the policy holder as an uninsured loss
a bit like an excess on an insurance policy
and tell him to sort it out
it is clear that the insurance has not contract with you
and I am not sure if teh contract third parties act helps
I think you claim off the policy holder as an uninsured loss
a bit like an excess on an insurance policy
and tell him to sort it out
it is clear that the insurance has not contract with you
and I am not sure if teh contract third parties act helps
One other thing, Nosh..... do NOT issue a zero-rated invoice. This is NOT zero-rated.
It may possibly be "exempt", but that's another story. Even if exempt, you still have to issue a normal VAT invoice. The difference there is that the plumber would not be able to reclaim. He should do just what I said above. Reclaim as a normal input.
It may possibly be "exempt", but that's another story. Even if exempt, you still have to issue a normal VAT invoice. The difference there is that the plumber would not be able to reclaim. He should do just what I said above. Reclaim as a normal input.
Try this for size. Would welcome Builder or PP comment.
Dear Mr Loss Adjuster. I reply to your recent emails. HMRC guidance regarding this situation is given in manual VIT13500 - VAT Input Tax basics: insurance claims, from I quote:
"Insurers cannot recover any VAT incurred in obtaining replacement goods or having repairs carried out for a policy holder. The supply of goods (or services in the case of repairs) is considered to be made to the policy holder. This is so even when payment is made directly to the supplier by the insurer.
Subject to the normal rules a VAT registered policy holder may treat any VAT incurred on the supply as input tax. The insurer will normally pay the policy holder compensation exclusive of VAT. The policy holder will pay the supplier the tax and recover it as input tax.
If an insurance claim is for loss or damage at a domestic property you should make sure that any VAT claimed as input tax relates only to goods used for a business purpose.
For VAT purposes payments received by policy holders from insurers are treated as compensation for the loss incurred. They are not consideration for any supply made by the policy holder."
The critical point made by HMRC is that "the policy holder will pay the supplier the tax and recover it as input tax". The policy holder is Mr Plumber and as a VAT-registered organisation that is what should occur in this situation. It is entirely incorrect that Nosha Ltd, as a VAT-registered business, should issue an invoice for services without the addition of VAT.
In summary, to meet HMRC guidance, Nosha Ltd will need to invoice Mr Plumber for the services, inclusive of VAT, and Mr. Plumber pays our company in full. You as loss adjusters utilise that invoice to reimburse Mr Plumber, less the VAT element, under the terms of his insurance with you. Mr Plumber treats the difference as an input VAT transaction.
I trust this clarifies the situation, YS Nosha Ltd
Dear Mr Loss Adjuster. I reply to your recent emails. HMRC guidance regarding this situation is given in manual VIT13500 - VAT Input Tax basics: insurance claims, from I quote:
"Insurers cannot recover any VAT incurred in obtaining replacement goods or having repairs carried out for a policy holder. The supply of goods (or services in the case of repairs) is considered to be made to the policy holder. This is so even when payment is made directly to the supplier by the insurer.
Subject to the normal rules a VAT registered policy holder may treat any VAT incurred on the supply as input tax. The insurer will normally pay the policy holder compensation exclusive of VAT. The policy holder will pay the supplier the tax and recover it as input tax.
If an insurance claim is for loss or damage at a domestic property you should make sure that any VAT claimed as input tax relates only to goods used for a business purpose.
For VAT purposes payments received by policy holders from insurers are treated as compensation for the loss incurred. They are not consideration for any supply made by the policy holder."
The critical point made by HMRC is that "the policy holder will pay the supplier the tax and recover it as input tax". The policy holder is Mr Plumber and as a VAT-registered organisation that is what should occur in this situation. It is entirely incorrect that Nosha Ltd, as a VAT-registered business, should issue an invoice for services without the addition of VAT.
In summary, to meet HMRC guidance, Nosha Ltd will need to invoice Mr Plumber for the services, inclusive of VAT, and Mr. Plumber pays our company in full. You as loss adjusters utilise that invoice to reimburse Mr Plumber, less the VAT element, under the terms of his insurance with you. Mr Plumber treats the difference as an input VAT transaction.
I trust this clarifies the situation, YS Nosha Ltd
Give it a go then, and see what happens. Probably send to Mr Loss Adjuster with copy to Mr Plumber.
I'm not convinced Mr Loss Adjuster will easily come off his first party / third party twaddle. If my draft runs into trouble with them, you need to make it clear that Nosha has an insurance claim against Mr Plumber, and the insurers are accepting liability and putting right the loss incurred by Nosha. The fact that the loss is being put right by Nosha Ltd doing the remedy work is merely incidental. That's where Mr Loss Adjuster is getting muddled.
I'm not convinced Mr Loss Adjuster will easily come off his first party / third party twaddle. If my draft runs into trouble with them, you need to make it clear that Nosha has an insurance claim against Mr Plumber, and the insurers are accepting liability and putting right the loss incurred by Nosha. The fact that the loss is being put right by Nosha Ltd doing the remedy work is merely incidental. That's where Mr Loss Adjuster is getting muddled.
I don't think I'd be able to answer these sorts of questions without a substantial career background in these areas; but I don't possess the legal or accountancy qualification as in letters after one's name.
Just say you've taken advice - you don't have to say from where. I'm afraid the nature of this site means I can't (nor wish) to give formal advice.
Just say you've taken advice - you don't have to say from where. I'm afraid the nature of this site means I can't (nor wish) to give formal advice.
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