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HMRC internal manual

VAT Insurance

Supplies of insurance and related services outside the UK: insurance ‘directly linked’ to the export of goods

There is provision within the law for input tax to be recovered if it is incurred in respect of supplies of insurance which are directly related to exports of specific goods to a place outside the EC.

The insurance must cover the risks of the person who owns the goods or is responsible for their export, for example, a freight forwarder. It must also relate to a movement of goods from a place inside the EC to a place outside it (insurance relating to a movement of goods from one place outside the EC to another place outside the EC is not covered by this provision).

Insurance is required to cover the risks associated with exporting goods. Types of cover under a policy could include delay of delivery, loss or theft of, or damage to, goods. These types of insurance would be directly linked to the export of goods; the insurance is only needed because the goods are being transported.

However other types of insurance connected to goods may not directly relate to the export of goods, even though the goods may eventually be exported. For example, insurance provided to cover the risk of a London warehouse burning down would not attract input tax recovery under this provision just because the warehouse is used for storing goods in the UK prior to their eventual export. Also, the risk in this instance is that of the warehouse owner, not that of the owner or exporter of the goods themselves.

Obviously not all situations will be as clear-cut as this example. You will need to take a common-sense approach to these situations.

Insurance policies relating to both imports and exports of goods

As with MAT insurance, the way in which the insurance industry is organised could cause difficulties in certain situations. In particular, some policies may cover risks associated with a trader’s imports and exports of goods. In such circumstances an apportionment to identify an appropriate export element will have to be made. It will also be necessary to ensure that the goods are destined for a final location outside the EC. We would expect that insurers would be able to establish this from information they hold. If this is not possible the business should treat such supplies as exempt, with no entitlement to input tax recovery.