- 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.
