Policy paper

Revenue and Customs Brief 13 (2013): loss adjusting services in connection with marine and aviation insurance claims

Published 2 July 2013

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 this brief.

Place of supply and the reverse charge are explained in Notice 741A ‘Place of supply of services’.

Background

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 - HM Revenue and Custom’s (HMRC) view

Surveys

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.

Loss adjusting

HMRC 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 zero-rate.

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. HMRC 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 zero-rated.

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, HMRC 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 HMRC 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.

HMRC 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.

2 July 2013