Treatment of fee protection insurance payments for VAT purposes.
My question concerns fee protection insurance. I understand that insurance is generally exempt from VAT and I pay no VAT on the premiums paid to the insurer.
If a client decides to take the benefit of the protection I charge them a bit extra and itemise it on their bill. Should that be exempt? Then when I make a claim I send a bill to the insurance company. If the client can recover VAT I bill the insurer for the net amount and send a VAT-only invoice to the client. If the client can’t recover VAT the insurer pays the whole amount.
But some of the people I have been talking to raise ‘no VAT’ invoices to the insurer and nothing else. Someone said the insurer had told them to bill for time spent but to describe it as ‘compensation’. Surely that can’t be...
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