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Tax handling (VAT) of compensation payments for car repairs

In this post, we explain the correct capture methods for outgoing invoices (debtors) and incoming invoices (creditors), for compensation payments on vehicle repairs. Since this is a complex process in terms of VAT law, please contact your (trustee) accountant(s) if you are in any doubt.

 

Overview

 


 

Basic Principle

Compensation for damages is the compensation of damage or the restoration of the economic status (of the article) prior to the occurrence of the damage. This also includes the compensation of so-called intangible misfortune (damages for pain and suffering). The injured party has a contractual or legal right to compensation for the damage (VAT info 04, para. 3.8.1.).

Payments for damages are not subject to VAT as there no service performance relationship exists. The damaging party does not pay for a service, but rather inflicted damage to the injured party. It doesn't matter whether the customer issues an invoice or whether s/he is issued a credit note.


 

Capturing the Supplier Invoice under - “Customer Deductible”

If you are a taxable person: The insurance paid 100% of the damage, minus the "customer deductible", without the VAT amount, on the complete repair invoice. The repair workshop, bodywork or spray-paint service provider charges you the deductible (without VAT), as well as the VAT amount which is not reimbursed by the insurance company.

  • Capturing the deductible: It represents an expense and is to be entered as a normal supplier invoice.
  • Subsequent debit of the VAT amount: Enter as a separate invoice with "100% VAT", like import tax, with no effect on profit. bexio books 100% of the VAT amount as input tax.
  • First check whether the corresponding VAT code is available. Under "Settings" - "All Settings" - "Accounting" - "Tax Rates", you have the option to create a new VAT code (analogous to “CUSTOMS”) or use the created code directly, for ease of operation.
  • Enter the invoice via "Purchase/Supplier Invoice" and define the corresponding expense account, e.g. vehicle expense. The amount is booked as 100% input tax via the newly created VAT code, or with the existing “CUSTOMS” code. The expense account only serves as the "carrier" for the VAT booking.

If you are not a taxable person: The insurance paid 100% of the damage, minus the "customer deductible", including the VAT amount on the total repair invoice. The repair workshop, bodywork or spray-paint service provider will only charge you the deductible (excluding VAT).

  • The deductible represents an expense, e.g. vehicle expense, and must be entered as a normal supplier invoice.

Only for Motor Vehicles (Repair, Bodywork And Spray-paint Service Providers):

A cash benefit from damages is not related to a (service) performance exchange. The payment of damages is therefore non-remuneration for lack of performance and therefore not taxable by the recipient, but is to be declared under point 910 of the VAT statement.

The receipt of compensation payments for the taxable injured party has no effect on the deduction of the input tax, i.e., even though the compensation is not remuneration, there is no need to make a VAT correction.

Benefits Provided by Insurance Companies

Compensation payments made by the insurer to the policy-holder, or insured party, following the occurrence of the (insured) event (payment of damages) does not constitute remuneration to the taxable beneficiary, and shall therefore not be taxable.  Thus, insurance companies do not pay VAT contributions for claims incurred by taxable persons.

The question of the extent to which an insurance company reimburses VAT in the event of a claim, and whether it will also reimburse VAT to a taxable person who settles using the balance tax rate method, is a matter of civil law.

Useful tip: The invoice provided by the service provider (repair workshop, bodywork or spray-paint service provider) is usually delivered to the insurance company with VAT added on. In the case of taxable persons, the damage is paid without the VAT amount. The service provider then requests the VAT from the taxable person and the taxable person can deduct the VAT amount as input tax.

 


 

Capturing the Sales Invoice - With Insurance Coverage

If you are a repair workshop, bodywork or spray-paint service provider, and you have repaired a damaged vehicle, (the following applies). The insurance company covers the costs and transfers the amount to you; depending on the circumstances, the amount will incl. or excl. VAT minus the "customer deductible". The "customer deductible" and the outstanding VAT, depending on the circumstances, will be charged to the policy-holder.

  • Create the basic sales invoice using "Sales - "Invoices." Use "Standard Position" to enter the corresponding positions incl. the VAT rate, as well as the position "Customer Deductible" as a negative amount incl. a special VAT code (without a digit assignment, it may not be included in the VAT statement. The warning message in the VAT settlement form, indicating that a VAT rate exists without a number, is to be ignored).

    For example:
    Bildschirmfoto_2019-11-12_um_17.25.09.png

 

  • If you create a second sales invoice to the same recipient address, containing the same amount entered in the first sales invoice under "Customer Excess", incl. the special VAT code (without reference, it may not be included in the VAT statement. The warning message in the VAT settlement form, indicating that a VAT rate exists without a number, is to be ignored).

    For example:
    Bildschirmfoto_2019-11-12_um_17.26.00.png

 

  • The payment of the first sales invoice is made by the insurance company, the payment of the second sales invoice by the policy-holder.

  • The policy-holder may be taxed (VAT): insurance companies usually do not pay VAT amounts for claims by taxable persons. These can be charged to the policy-holder.

    Useful tip: After receipt of payment, create the payment slip via the open VAT amount. You can create this by selecting the "Triangle Symbol" next to "Print Invoice (PDF)" in the open invoice screen, using the option "Payment Slip with/without Logo".

    For exemple:

    12-11-_2019_14-39-38.png

 

  • Once the balance is settled, your invoice will be fully settled, with "Paid" status.

 


 

Capturing the Sales Invoice - Without Insurance Coverage

If you are a repair workshop, bodywork or spray-paint service provider and, as a taxable person, you repair the damage yourself. You must charge the damaging party for this and you do not have to tax the corresponding income (real compensation). It is recommended, that you put the following note on the invoice: "Compensation without VAT".

  • Check the presence of the corresponding VAT code “SPE” first. Under "Settings" - "All Settings" - "Accounting" - "VAT Tax Rates" you have the option to activate the "SPE" VAT code.

  • Create the sales invoice using "Sales" - "Invoices". Enter the corresponding positions with the VAT code "SPE" via "Standard Position". As a result, the revenue in the VAT statement under point 910 is declared as "Non-remunerated".

  • Payment is made by the damaging party.

 


 

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