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HMRC internal manual

VAT Insurance

Claims handling: General

VATINS5500 covers claims handling by insurance agents and brokers under Item 4 of the exemption.

Claims handling services are exempt from VAT. Claims handling is not specifically defined in VAT legislation, but is seen as activities that culminate in the making of the decision which brings about the full or partial settlement or rejection of the policyholder’s claim. This decision is made by the insurer (or by an agent acting on behalf of the insurer). The principal elements of this supply are listed below:

  • receiving details of claims and checking that the information provided is sufficient;
  • ensuring that the claim falls within the terms of the policy;
  • ensuring that an insurer is advised of its potential exposure;
  • processing the claim (for example responding to communications and keeping interested parties informed of progress) including negotiations with claimants and claims suppliers;
  • agreeing the validity and/or quantum of any claim;
  • arranging for the settlement to be made.

Where claims handling services are provided as part of a composite supply which includes a number of other elements (such as advisory, investigative or administrative services) that would be subject to VAT if supplied in isolation the supply will be taxable or exempt depending on which elements form the principal part of the single composite supply of claims handling (see VATINS7000).