2.9 Excess payments
(a) Insured pays excess directly to third party supplier
The third party supplier,3 in making a taxable supply of goods or services, is liable to issue a valid tax invoice in respect of this supply.
The third party supplier must issue two tax invoices, that is, one to the insured to the extent of the excess payment and one to the insurer to the extent of the trade payment.
The short-term insurer is, in terms of section 16(3)(a), entitled to deduct input tax on the goods or services acquired from the third party supplier and is therefore not entitled to a section 16(3)(c) deduction in respect of this supply.
The insured (being a vendor) is, in terms of section 16(3)(a) and being in possession of the tax invoice, entitled to deduct input tax on the goods or services acquired from the third party supplier to the extent that those goods or services are acquired for the purposes of making taxable supplies.
The short-term insurer issuing a notice to an insured which informs the insured of the potential output tax liability, as envisaged in section 8(8), that arises as a result of a trade payment made in terms of a contract of insurance.
(b) Short-term insurer pays full amount to third party service provider and recovers excess from insured
Excess payments received by short-term insurers from the insured do not constitute “consideration” as defined in section 1(1) and as a result fall outside the scope of the VAT Act. These payments are therefore not subject to VAT in the hands of the short-term insurer.
The short-term insurer is, in terms of section 16(3)(a), entitled to deduct input tax on the goods or services acquired from the third party supplier limited to the trade payment made in terms of the contract of insurance.
Where the short-term insurer, acts as an agent of the insured when contracting with the third party supplier for the portion of the excess payment, the short-term insurer will be required to issue a statement contemplated in section 54(3) to the principal where the third party supplier issued the tax invoice in the name of the short-term insurer.
The insured (being a vendor) is, in terms of section 16(3)(a), entitled to deduct input tax on the goods or services acquired from the third party supplier to the extent that goods or services are acquired for the purposes of making taxable supplies, provided the insured obtains and retains the tax invoice or statement contemplated in section 54(3), whichever is applicable.
3 Third party suppliers are suppliers of goods or services receiving trade payments from short-term insurers which are in respect of goods or services supplied to the short-term insurer as a result of the short-term insurer being liable, in terms of a short-term insurance policy, to replace or repair goods or services of the insured which are lost, damaged or destroyed.
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