I have received an invoice from a windscreen repair company which includes the net amount of the policy excess and then ALL of the VAT (i.e. the VAT relating to the proportion of the NET amount paid by the insurance company, as well as the VAT on the excess!)
I have Googled this and despite sounding dodgy to me, it is apparently standard practice, but the QuickFile system doesn’t allow me to account for a VAT amount higher than the percentage bracket.
I have worked back from the VAT amount to calculate the total NET amount and entered that as a standard rated item, then entered a ‘discount’ line for the proportion of the NET amount paid by the insurance company and zero rated it, so my purchase invoice now tallies correctly, but I just wanted to make sure that this is correct?
That sounds exactly like I used to record these things - one 20% line for the total net cost plus VAT, one 0% negative line for “net paid by insurer”, leaving the excess as the net total and all the vat as the vat total.
It doesn’t really matter how you break it down in QuickFile as long as the totals are right - the only people who see the QuickFile purchase record are you, your accountant, and possibly an HMRC inspector if you ever get audited, so as long as you’re happy you can explain it to these people then you’re fine.
Indeed - the point of insurance is to compensate you for (some of) the cost you incur as a result of whatever event you’ve insured against. When you’re VAT registered the VAT isn’t a “cost you incur” because you’re entitled to claim it back from HMRC, so the insurance only needs to cover the net.
Yes, I realise that the VAT portion doesn’t make any difference, by dodgy I meant only in the sense that it makes entering the details more troublesome; I assume they simply do it in order to push the cashflow burden to the customer rather than themselves.
