HM Revenue and Customs Brief 13/13
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Issued 2nd July 2013
VAT: Loss adjusting services supplied in connection with
marine and aviation insurance claims - incorrect application of the
Purpose of this Brief
This Brief confirms the VAT treatment of loss adjusting
services supplied in connection with marine and aviation insurance
claims and explains what action to take if you have failed to account
for VAT in respect of such services in the past.
We are issuing this Brief because it appears that many
businesses have been incorrectly treating such services as zero-rated
surveys for VAT purposes.
Who needs to read this?
- Businesses that supply loss adjusting services in
connection with marine or aviation insurance claims.
- Insurers that receive such loss adjusting services
(including insurers that receive such services from abroad).
- Insurance brokers or agents acting in the marine and
aviation insurance industry.
Action to take
Businesses that supply the relevant loss adjusting services
should ensure that they account for VAT at the standard rate where the
services are treated as supplied in the UK in accordance with the place
of supply rules, and should review their retrospective VAT treatment in
accordance with this Brief.
Insurers that receive these services from abroad should ensure
that they account for standard rated VAT under the 'reverse charge' and
should also review their retrospective VAT treatment in accordance with
Place of supply and the reverse charge are explained in Notice
741A 'Place of supply of services'.
The VAT Act 1994, Schedule 8, Group 8 provides that the
zero-rate of VAT applies to certain services supplied in connection
with 'qualifying' ships and aircraft. HMRC's guidance on this subject
is in Notice
744C 'Ships, aircraft and associated services'.
Amongst other things, the zero-rate covers surveying services
or classification services supplied in connection with a 'qualifying'
ship or aircraft. This is explained in paragraphs
9.5 and 9.6 of Notice 744C.
Some businesses have operated on the mistaken belief that loss
adjusting services are zero-rated under this provision.
VAT liability - HMRC's view
HMRC's view is that the zero-rate is restricted to surveys
necessary to establish the seaworthiness, airworthiness or
classification of a qualifying ship or aircraft to enable it to be
registered and therefore meet the direct needs
of the ship or aircraft. Such surveys by their nature require a
physical inspection of the ship or aircraft. Certain surveys carried
out under statutory authority may be outside the scope of VAT.
We do not consider loss adjusting services to fall within this
zero-rate under any circumstances. It is our view that, although a
supply of loss adjusting may contain an element of inspection, such
inspections are not qualifying surveys for the purposes of the
In any event an inspection is just one of a number of elements
that make up a supply of loss adjusting which will also include other
elements such as establishing the facts, valuing the claim and
determining the appropriate redress. The overarching or predominant
nature of the supply is therefore not a surveying service. We consider
the services to be single supplies of loss adjusting and liable to the
standard rate of VAT to the extent that they are supplied in the UK.
Such supplies do not meet the direct needs
of the ship or aircraft; rather they meet the needs of the insurer in
assessing the insurance claim.
Place of supply of loss adjusting services
The place of supply of a loss adjusting service is where the
customer belongs. Therefore, loss adjusting supplies made to non-UK
located insurers will be outside the scope of UK VAT.
It is necessary to complete EC sales lists in relation to
supplies of goods and services made to business customers based in the
EC if those services would be liable to VAT if supplied in the UK. For
information about this, see Section
17 of Notice 725 'The single market'.
Loss adjusting services received from abroad
If a UK insurer receives loss adjusting services from abroad,
the UK insurer will be required to account for standard rated VAT on
the receipt of the services under the 'reverse charge' procedure. For
information about the reverse charge, see Section
18 of Notice 741A 'Place of supply of services'.
What to do about past supplies
Services involving a physical inspection
We accept that our guidance about services which required a
physical inspection to be carried out was misleading and that
businesses had a legitimate expectation that these supplies were
Consequently, we do not require businesses to account for VAT
on past supplies if they have incorrectly applied the zero-rate to loss
adjusting services relating to 'qualifying' ships or aircraft that
involved a physical inspection. Businesses that have not already
started to account for VAT on such supplies should start to do so from
1 September 2013.
Services not involving a physical inspection
Businesses that applied the zero-rate to loss adjusting
services that did not include a physical inspection are required to
account for VAT, as set out in 1.6 below, unless they can demonstrate
to their local Complaints Team that they were misled by HMRC and had a
legitimate expectation that those supplies would be zero-rated. We
would recommend businesses to contact their complaints team if they
consider that they have been misled by HMRC in relation to the
liability of their supplies have acted in accordance with the
misleading representation would suffer real detriment if VAT was to be
collected for past supplies.
However, we consider that legitimate expectation is less
likely to apply to services not involving a physical inspection,
because Notice 744C 'Ships, aircraft and associated services' has,
since 1997, made it clear that physical inspection is an essential
condition to the zero-rate. The matter of whether we accept, in any
individual case, that a business had a legitimate expectation will
depend on the facts of the case.
For information about our complaints procedure, go to www.hmrc.gov.uk,
and under 'quick links', select 'Complaints'.
How to account for under declared VAT
If, in light of this Brief, you have not accounted for VAT
correctly in the past, please see Notice
700/45 'How to correct VAT errors or make adjustments or claims'
for guidance on how to make an adjustment.
We understand that some businesses will find it difficult to
work out retrospectively to what extent their services were supplied in
the UK, due to not having access to details of their insurance
customers' locations. In cases of co-insurance, the issue is
complicated further because there may be multiple customers based in
multiple locations. HMRC will consider reasonable apportionment methods
for any business that faces such difficulties - for example,
apportionment based on sampling. Any proposal for an apportionment
method should be submitted together with any error notification made in
accordance with Notice 700/45.
About the Author
© Crown Copyright 2013.
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Article Published/Sorted/Amended on Scopulus 2013-07-03 14:44:30 in Tax Articles