The move by HM Revenue & Customs involves adding a “use and enjoyment” provision to make insurance repair services carried out in the UK for UK policyholders subject to VAT “irrespective of whether the insurer belongs outside of the EU”.
HMRC said it was aware that a small number of insurers had “structured their arrangements to avoid incurring irrecoverable VAT by undertaking to repair insured goods via an offshore insurance entity”.
Several other insurers had complained that this practice challenges fair competition, it said.
Some UK insurers were structured so that the insurance products offered to UK policyholders were provided by a company based offshore, for example, in Gibraltar or the Channel Islands, where there is no VAT.
Under this arrangement, any insurance repairs were charged to the offshore company.
“By widening the use and enjoyment provisions to encompass repair services the place of supply will be the UK and VAT will be charged. The measure also deters possible expansion of this avoidance and levels the playing field”.
This measure, which was revealed in former chancellor George Osborne’s Summer Budget 2015, was originally intended to take effect from April this year.