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HMRC internal manual

VAT Place of Supply of Services

From
HM Revenue & Customs
Updated
, see all updates

Use and enjoyment: Insurance repair services

When do the provisions apply from?

They apply to repair services performed on or after 1 October 2016.

When does it apply?

This use and enjoyment rule applies where

  • a repair is performed as a result of an insurance claim and
  • the repair is performed on moveable goods (eg motor cars, mobile phones, tablets etc.) and
  • the supply of repairs is to a business that is not the insured (normally the insurer) and
  • the supply would be outside the EU (because the customer belonged outside the EU), but the service was effectively used and enjoyed in the UK or
  • the place of supply would be the UK (because the customer belongs in the UK) but the services are effectively used and enjoyed outside the EU.

It only needs to be considered when the insurer is responsible under the contract of insurance for the repair of the goods. If the contract requires the insurer to provide a replacement, or a cash indemnity to cover the cost of repairs, this use and enjoyment provision does not apply. If the supply of the repair is to the insured party, even if the insurer pays directly for the repairs, this provision does not apply.

What does ‘use and enjoyment’ mean in this context?

The use and enjoyment place of supply rule for insurance repair services applies when the insurer’s obligation to the insured party is fulfilled by way of the repair.  If the goods are to be used in the UK and are insured as a UK risk, the repair is used and enjoyed in the UK.

Therefore, to establish the place of supply it will be necessary to consider a number of factors such as where the insured belongs, where the goods are normally used and (in some cases) where the goods are registered for use when the repair is carried out.

For example, if the insured lives in the UK (rather than being a temporary visitor), but the business that is invoiced for the work belongs outside the EU, it is highly likely that the service is used and enjoyed in the UK.

If the goods are registered and insured for use in the UK (such as a motor car), then irrespective of where the insured belongs, the use and enjoyment provisions are likely to apply.

How do the use and enjoyment provisions work?

The use and enjoyment provisions work by moving the place of supply of the service from where it would normally be treated as taxed (where the insurer belongs under the general B2B rule) to where the service is actually consumed, which in this instance is where the goods are normally used.

So if an invoice is raised to an insurer based in Gibraltar for work carried out on a car belonging to a UK resident with UK number plates, the effective use and enjoyment takes place in the UK rather than in Gibraltar.

Unlike other use and enjoyment provisions no apportionment is available, so if the motor car referred to above is insured for short-term use on mainland Europe as part of the contract it does not affect the amount of UK VAT due on the service.

What goods are affected?

The provision applies to goods like boats, motor cars, bicycles, mobile phones, tablets etc. It does not include items installed as fixtures and fittings to a building or other property nor does it include pets, livestock or other animals.

Is the work carried out for a business located outside the EU?

The VAT territory of the EU can be found at: VAT EU country codes

The use and enjoyment provision does not apply if the business receiving the service (or their agent) belongs within the EU or if the person receiving the service is not a business.

Is the repair the result of an insurance claim?

A repairer will normally know whether the work carried out is related to an insurance claim as they will have been approved to perform the work. They are also likely to have a contractual arrangement with the insurance company to provide work over a period of time with an agreed pricing structure. If the agreement is with an entity outside the EU, it is likely that these use and enjoyment provisions will come into play.

If the repair is carried out under a warranty that is not covered by a contract of insurance the provisions do not apply (See Notice 701/36 insurance for further information)

What can an insurer do to demonstrate that VAT does not apply?

The normal position is that insurers provide a cash indemnity therefore the repair is supplied to the insured party. If the insured belongs in the UK the service is subject to VAT. If the insurer has to repair the goods, rather than simply pay for the repair, the use and enjoyment provision means that VAT is applicable to goods used in the UK if the insurer is based outside the EU. Therefore VAT is applicable to most repairs carried as a result of an insurance claim by a UK insured party.

Therefore if an insurer or their agent challenges the VAT charged by a repairer they will need to demonstrate to the repairer’s satisfaction:

  • that the goods are only temporarily in the UK with the normal place of use being elsewhere or
  • that it (the insurer) belongs in the EU (and so will account for VAT using the reverse charge procedure) or
  • that they are only providing a cash indemnity to the insured under the insurance contract  so that the repair service is supplied to the insured party who belongs outside the EU.

What about a UK insurance business receiving repair services?

Where a UK business contracts to repair goods belonging to an insured party and that party belongs and/or habitually uses those goods outside the EU, the effective use and enjoyment of those goods will be outside the UK and no VAT is due on the repair service.

Zero rating

In the majority of cases repair services whose place of supply is the UK will be subject to the standard rate. However, there is a zero rate available for repairs to eligible means of transport see Notice 744C: ships, aircraft and associated services .

and also VATTRANS120000 .

Examples

A UK garage repairs a motor car registered for use on UK roads and insured with a business in Gibraltar. The insurer is obliged to repair the car rather than pay for repairs. The repair service is used and enjoyed in the UK so UK VAT should be charged to the non-EU insurer.

A UK repairer of mobile phones replaces the screen on a smart phone belonging to a UK resident which is insured with a business in Jersey. The Jersey business is obliged to repair the phone rather than pay for repairs to be carried out. The repair service is used and enjoyed in the UK and UK VAT should be charged to the non-EU insurer.

A Swiss garage provides car repairs for the benefit a holidaymaker, who is a UK resident. The car is insured with a Gibraltar based insurance company which is obliged to repair the car rather than pay for repairs to be carried out. The supply takes place entirely outside the EU but, as the car is registered for use in the UK, the use and enjoyment provisions apply and the garage is liable to register in the UK and account for UK VAT see section 9 of Notice 700/1: should I be registered for VAT? .

A Swiss garage provides car repairs for a holidaymaker who is a UK resident insured with a UK based insurer. The insurer is obliged to repair the car rather than provide cash to pay for the repairs. The repair is supplied to the UK insurer. The supply takes place in the UK where it is also used and enjoyed. The insurer should account for VAT using the reverse charge.

A UK garage repairs a Swiss resident’s motor car damaged whilst the Swiss resident is on holiday in the UK. The car is insured with a UK based insurance entity that is obliged to repair the car rather than pay for repairs. The repair is used and enjoyed in Switzerland where the car is registered for use and the insured party belongs so no UK VAT is due.