New HMRC Guidance for Insurance Sector: Fair and Reasonable Partial Exemption Special Methods

• HMRC has issued new guidance for the insurance sector regarding partial exemption for insurers
• The guidance aims to help insurers agree on a fair and reasonable partial exemption special method (PESM)
• Insurance businesses often make a mixture of exempt and taxable supplies and may provide services to customers outside of the UK
• The starting point for calculating recoverable input tax is the standard partial exemption method, but this is rarely suitable for the insurance sector
• Most insurance businesses will need to apply to HMRC for approval to use a PESM
• A PESM needs to be fair, reasonable, robust, unambiguous, operable, auditable, and reflect the economic use of costs
• HMRC will only agree to a PESM if the business declares that it has taken reasonable steps to ensure fairness and reasonableness
• Direct attribution of input tax can cause difficulties in the insurance sector, so it may not always be the first step in cost allocation
• The guidance provides examples of special methods that can be used, such as sectors and sub-sectors, time spent, headcount, values, number of transactions, floor space, cost accounting system, pro-rata, and combinations of these methods.

Source: deeksvat.co.uk

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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