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VAT on flood insurance claims could leave flooded farmers out of pocket5th March 2014

VAT on flood insurance claims could leave flooded farmers out of pocketFor local South West farmers and businesses the misery caused by the flooding is not all over yet.

As hundreds of millions of pounds are expected to be claimed on insurance for damaged crops, farm machinery, buildings and fencing, it is important that farming businesses check whether they can recover the VAT that will be incurred on repair works. 

Richard Cartwright tax partner at Saffery Champness’ office in St Catherine’s Court, Berkeley Place, Clifton, Bristol said: “With the floods still covering huge areas of farmland in Somerset and Gloucestershire, it is important to remember that even though insurance claim settlements are not subject to VAT, the farm or estate is likely to incur VAT on repair works to put right damage or to replace damaged stock for example.

“The VAT paid is recoverable from HMRC subject to the normal VAT rules. Similarly, VAT on any legal services that may be required where policies provide cover for such costs may also be subject to the same rules.

“Where farm or estate businesses are VAT registered they should bring this to the attention of their insurer where they intend to make a claim. They will need to ascertain whether they may be able to recover all of the VAT incurred in connection either with repairs or reimbursement for damage, stock or other property from HMRC.

“Insurance policies may allow non-VAT registered farmers to make claims for VAT that are not recoverable from HMRC, or in situations where a VAT registered farming business is partially VAT exempt.

“In these circumstances all of the options should be explored as appropriate to ensure the farming business is not left out of pocket on VAT.”

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