Gibraltar and Channel Island based insurers are hit by new UK VAT rules. This new rule will be introduced on 1st October 2016. This move by HMRC adds a “use and enjoyment” provision. This is done to make sure that insurance repair services that are carried out in the UK for UK policyholders who are subjected to VAT “irrespective of whether the insurer belongs outside of the EU”.
HMRC has said that it was aware that small amount of insurers had “structured their arrangements to avoid incurring irrecoverable VAT by undertaking to repair insured goods via an offshore insurance entity”.
Insurers have complained that this practice challenges fair competition.
Some insurers in the UK were structured so that the insurance products which are offered to the UK policyholders were provided by a company based offshore. An example of this includes, Gibraltar or the Channel Islands as there is no VAT. Under arrangements with this, any of the insurance repairs were charged to offshore companies.
“By widening the use and enjoyment provisions to encompass repair services the place of supply will be the UK and VAT will be charged. The measure also deters possible expansion of this avoidance and levels the playing field”.
This was revealed in former chancellor George Osborne’s Summer Budget 2015 which was originally used to take the effect away from April.