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Do you know how the Vat on Group Accident claims affect employers acting as the principal or agent?

by , 08 May 2015
To look at how the Vat on Group Accident claims affect employers acting as the principal or agent, we'll assume that one of your employees becomes injured and is unable to work for months.

First of all, such a situation could result in expensive compensation payments.



Moreover, if the employee is one of your key employees, you might even experience loss of business if customers choose to go elsewhere because of business disruption.

Group Accident Insurance is insurance for organisations to reduce financial losses resulting from such situations.

Usually it involves cover for:
• Accidental Death;
• Broken Bones due to an accident;
• Temporary Total Disablement due to an accident; and
• Permanent and Partial Disability due to an accident.

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There are two ways to deal with the Vat in two ways:

a. When the employer is acting as a principal; or
b. When the employer is acting as an agent on behalf of employees.

Let's take a look at each of these in detail.

a. Employer acting as principal

• If the employer is a Vat vendor, he can claim input tax on short-term insurance premiums. This
is only when the insurance is for the purposes of making taxable supplies.

• If the employer receives any payments from the insurance company because of a claim, he'll have
to account for output tax on such payments he receives.

• You as the short-term insurer can claim input tax for the indemnity payment made.

• The employer won't be entitled to claim any further input tax for amounts later paid to the
employee – for example if he pays for the employee's funeral.

b. Employer acting as an agent on behalf of employees If the employer acts as an agent for its employees and enters into a contract of insurance with the short-term insurer, the employer won't be able to claim input tax for the premiums on group personal accident insurance. This is because it's not really the employer's expense.

As a final note, keep in mind that there will also not be any output tax to declare.

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