INSURANCE RELATED SERVICES VAT

VAT and Insurance Related Services

Section 199 Finance Act 2001

The Finance Act 2001 introduced, with effect from 1 May 2001, a change in the VAT treatment of certain insurance related services. Prior to 1 May 2001, claims handling and claims settlement services were regarded as taxable services, liable at the rate of 20 per cent.

As a result of the Finance Act changes (Section 199) claims handling and claims settlement services carried out by an agent under delegated authority from the insurer and, where the insurer is bound by the decision of the agent in relation to that claim, may be regarded as coming within the exemption at paragraph (xi) of the First Schedule to the VAT Act. Where the agent has binding authority to settle claims up to a certain monetary limit only services relating to claims up to that limit qualify as exempt.

Where the agent does not hold full binding authority, or, where services relate to claims which exceed the monetary limit, the claims handling or claims settlement services do not qualify as insurance related services and are not, therefore, exempt.

As a result of these changes, loss adjusters, motor assessors and other experts whose activities include claims handling and claims settlement services, formerly taxable, may regard those services which qualify as insurance related services, as described, as exempted activities.