warranty cover - Is it Vat Exempt?
Discussion
Are you in the car trade?
Here's HMRC's advice.
Selling guarantees, warranties, mechanical breakdown insurance or other insurances
If you sell some sort of warranty or breakdown insurance with a new or used vehicle, the VAT position depends on who is providing the cover.
In-house warranties
If you're taking all the risk, then you must charge VAT at the standard rate on the selling price of the guarantee, even if you take out 'stop loss' insurance yourself to cover any major potential risk.
Insurance backed warranties
If the warranty or guarantee held by your customer is a contract underwritten by an insurance company then the premium that your customer pays is exempt from VAT. You'll have to disclose to your customer, in writing:
the amount of the premium
any fee you charge for arranging the insurance
If you wanted instead to include the cost of the premium and any arrangement fee in the overall price of the vehicle then you would have to charge the standard rate of VAT on:
your arrangement fee - if you charge one
the part of the premium you keep - your commission
The net premium you pay to the insurance company remains exempt.
Find out more about VAT treatment of guarantees and warranties
More about insurance in VAT Notice 701/36
Insurance Premium Tax (IPT)
IPT is charged on premiums for insurance relating to vehicles, and is paid to HMRC by the insurance company. But if you charge an arrangement fee to a customer under a separate contract you'll have to register for IPT, and account for IPT on the arrangement fees you charge.
Find out more about IPT
Second-hand vehicles and warranties
You might sell a second-hand vehicle and a warranty together for a single price. But you can't include the sale of the warranty in the calculation of your margin if you've given the warranty a value. The sale of the warranty is a separate supply of services and you'll have to account for VAT on the value.
If you advertise a Margin Scheme vehicle for sale with a free guarantee you can't reduce the vehicle's selling price by an amount to represent the guarantee when you work out the margin on which VAT is due. This is because no value has been given to the guarantee in your advertising.
For VAT purposes there are two supplies if your customer can choose whether or not to buy a guarantee with a Margin Scheme vehicle - and if both the price of the vehicle and the guarantee are separately negotiable. This means that VAT at the standard rate is always due on the selling price of the guarantee - even if you sell the vehicle at a loss under the Margin Scheme.
Here's HMRC's advice.
Selling guarantees, warranties, mechanical breakdown insurance or other insurances
If you sell some sort of warranty or breakdown insurance with a new or used vehicle, the VAT position depends on who is providing the cover.
In-house warranties
If you're taking all the risk, then you must charge VAT at the standard rate on the selling price of the guarantee, even if you take out 'stop loss' insurance yourself to cover any major potential risk.
Insurance backed warranties
If the warranty or guarantee held by your customer is a contract underwritten by an insurance company then the premium that your customer pays is exempt from VAT. You'll have to disclose to your customer, in writing:
the amount of the premium
any fee you charge for arranging the insurance
If you wanted instead to include the cost of the premium and any arrangement fee in the overall price of the vehicle then you would have to charge the standard rate of VAT on:
your arrangement fee - if you charge one
the part of the premium you keep - your commission
The net premium you pay to the insurance company remains exempt.
Find out more about VAT treatment of guarantees and warranties
More about insurance in VAT Notice 701/36
Insurance Premium Tax (IPT)
IPT is charged on premiums for insurance relating to vehicles, and is paid to HMRC by the insurance company. But if you charge an arrangement fee to a customer under a separate contract you'll have to register for IPT, and account for IPT on the arrangement fees you charge.
Find out more about IPT
Second-hand vehicles and warranties
You might sell a second-hand vehicle and a warranty together for a single price. But you can't include the sale of the warranty in the calculation of your margin if you've given the warranty a value. The sale of the warranty is a separate supply of services and you'll have to account for VAT on the value.
If you advertise a Margin Scheme vehicle for sale with a free guarantee you can't reduce the vehicle's selling price by an amount to represent the guarantee when you work out the margin on which VAT is due. This is because no value has been given to the guarantee in your advertising.
For VAT purposes there are two supplies if your customer can choose whether or not to buy a guarantee with a Margin Scheme vehicle - and if both the price of the vehicle and the guarantee are separately negotiable. This means that VAT at the standard rate is always due on the selling price of the guarantee - even if you sell the vehicle at a loss under the Margin Scheme.
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