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VAT Premium Report changes

This article is to advise Lloyd’s managing agents of changes to the Xchanging premium VAT report used for syndicate VAT partial exemption recovery calculations.

For the purposes of VAT recovery in the UK, a supply of insurance is an exempt supply which means that no VAT is charged by Lloyd’s syndicates when supplying insurance services and VAT on the costs relating to those supplies cannot be recovered.

The Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (“SSO”) allows businesses who export certain financial services (including supplies of insurance), known as “specified supplies”, to deduct input tax on costs associated with making those supplies.

Prior to the end of the transitional period for the UK exiting from the European Union (EU), the SSO only provided a right to deduct input tax in relation to specified supplies made to customers belonging outside the EU. With effect from 1 January 2021, the SSO was extended to include specified supplies made to customers also belonging in the EU.

Section 7.1 of Lloyd’s VAT arrangements sets out that Lloyd’s syndicates should agree a partial exemption special method (PESM) with HMRC which reflects the business activities of the syndicate.  Section 7.4 details how syndicates can calculate the VAT recovery of any underwriting sector in their PESM using premium coded by LPSO (Xchanging) as follows:

  • X = exempt and outside the scope with no input tax credit
  • Z = outside the scope (O/S) with input tax (I/T) credit
  • M = mixed, this will be split 50/50 to X and Z

In response to the changes to the SSO, the above premium coding will need to be amended so that premium charged with respect to policyholders belonging in the EU will be coded as Z.  Therefore, Lloyd’s have commissioned Xchanging to develop a new Premium VAT report which will be made available to all Lloyd’s managing agents.  

The new report will be provided to managing agents quarterly and will consist of the following fields:

Actions and Next Steps

  • If you currently receive a VAT premium report containing the X/Z indicators you do not need to do anything.  Your first report will be delivered in April 2021 in respect of the Q1 2021 data in the same manner as the previous report.
  • If your managing agent does not currently receive a VAT premium report for your VAT registered syndicates, please contact Lloyd’s Tax Department (taxdept@lloyds.com) for further guidance.