It's important that you get the Vat treatment of insurance right, especially when you receive an insurance settlement.
Here's a checklist of the four critical facts you must know about Vat when you receive an insurance settlement:
#1: According to the Practical Vat Loose Leaf Service, short-term insurance attracts Vat at the 14% standard-rate. That means when you receive a payment for a claim you have made, that payment will include Vat of 14%.
#2: If you make a claim that relates to a loss in your business, you must account for Vat as output tax in the Vat return that covers the period in which you receive the payment.
It's important to note that you only make this calculation when the payment relates to the loss of goods, items or supplies on which you were entitled to claim an input tax deduction when you first bought them.
#3: Your calculation will be the amount received multiplied by 14/114. This will give you the Vat amount you must put into block 12 of your Vat return.
#4: If the insurance company merely replaces or repairs the goods, no output tax calculation is necessary.
Well there you have it. Knowing these four critical facts will help ensure you handle Vat correctly when you receive an insurance settlement.