A VAT word from CM 's insurance man
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• Value-added tax — only five weeks away — will affect different businesses in different ways, and transport is fortunate in being zerorated. And insurance premiums will not go up because of VAT, believes CM's insurance correspondent, although he admits this is, finally, a matter of guesswork.
The VAT White Paper lists as exempt the provision of insurance. However, because insurers are so categorized they will be unable to recover VAT paid by them on their inputs — payments to solicitors, phone bills and so on. But as VAT replaces SET and purchase tax any increase in expenses could be minimal.
VAT may necessitate some adjustment to sums insured under fire and theft insurance policies. All firms should reconsider their insurances bearing in mind that private persons and "exempt" businesses and professions should insure for full value including VAT.
Businesses accountable for VAT or
those zero-rated will generally be able to recover from the tax authorities VAT paid on goods and services used in their taxable transactions and, to the extent that they are able to do so, should exclude VAT in arriving at their sums insured.
VAT will give rise to changes in the handling of insurance claims. For instance, it has been the practice of insurers to authorize and settle garage accounts on accidental damage motor claims direct with the repairer. This practice will be continued for exempt persons and firms.
However, new considerations arise in respect of taxable and zero-rated persons and firms. If insurers are to avoid liability for VAT on the cost of repairs, the insured will probably have to authorize and pay for his own repairs, thereby obtaining credit for VAT. Reimbursement will then be made to the insured net of VAT. But perhaps some other method may be thought up when VAT actually gets into operation.