Insurance with other goods and services: insurance supplied by insurers with other goods or services: engineering insurance and inspection services
Engineering insurance is not a specifically recognised class of insurance under the FSMA. This type of insurance covers large items of capital plant or equipment, for example industrial boilers, cranes and lifts. It is intended to protect the insured against the risk of the plant going wrong for whatever reason. Such insurance covers a malfunction of the plant itself, as well as the risk of damage caused by a third party.
Inspection services are often carried out under an engineering insurance contract. They can take two forms - inspections which are for the benefit of the:
- insurer and are designed to provide reassurance to the insurer that all conditions attached to the insurance contract are being complied with; and
- insured, perhaps to identify ways to reduce cover or prevent the need for a claim.
If, as a condition of the insurance, an insurer reserves the right to inspect the insured plant wholly for the purpose of the control of the risk, then such inspections would normally constitute an overhead of the insurer, rather than a separate supply of inspection services to the insured.
Where however, an insurer makes a supply of inspection services in the UK, these supplies will be subject to VAT at the standard rate; an insurer is contracted to provide the customer with insurance and separate inspection services, VAT is due on the supply of inspection services and the insurance premium is exempt from VAT; or both VAT exempt insurance and standard-rated inspection services are being provided under a single contract, it will be necessary to determine whether there is a single or multiple supplies according to the guidance in VATINS7130 and apply the VAT treatment accordingly.
Where an insurer subcontracts the engineering inspection to a third party, that person will make a standard rated supply of services to the insurer. Where the insurer makes an onward exempt supply of insurance with ancillary inspection services, the VAT charged by the third party will not be recoverable.
Commission earned by intermediaries in respect of a contract for engineering insurance with inspection services will have the same tax liability as the contract itself.