On August 10, 2016 the UK HM Revenue & Customs (HMRC) published a policy paper titled: “VAT: use and enjoyment of insurance repair services”. In the policy paper it is stated that the government has become aware that a small number of insurers have structured their arrangements to avoid incurring irrecoverable VAT by undertaking to repair insured goods via an offshore insurance entity. Several other insurers have complained that this practice challenges fair competition.

In the policy paper it is furthermore stated that the UK  government is responding by introducing a use and enjoyment provision into VAT law to ensure that repair services carried out in the UK for UK policyholders are subject to UK VAT irrespective of whether the insurer belongs outside of the EU.

Topics discussed in the policy paper include a.o.:

·   Policy objective

·   Background to the measure

·   Detailed proposal

o  Operative date

o  Current law

o  Proposed revisions

In the Paragraph “Proposed revisions” the following is stated:

“The proposed change will amend VAT Act 1994 Schedule 4A by affirmative Treasury Order using powers contained in section 7A(6). It will introduce a use and enjoyment provision, similar to that contained in Schedule 4A paragraph 8, for repair services carried out on goods in the UK, as a result of an insurance claim.

This will ensure that such services are subject to UK VAT when they are effectively used and enjoyed in the UK. This now means that an offshore recipient of these services, such as an insurer, will be charged UK VAT on a service that is currently outside its scope. It will no longer be treated as a business to business transaction falling under the general rule, which puts the place of the supply where the recipient belongs.

It will also introduce a mirror provision so that repair services that would have been treated as supplied in the UK, but are used and enjoyed outside the EU, will now be seen as outside the scope of UK VAT.”

Click here to be forwarded to the policy paper as published by the UK HMRC on August 10, 2016.

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