When fleet casco claims are accounted for, the same question comes up in accounting nearly every time: “why did the insurer transfer less than the amount on the invoice?” The answer is not arbitrariness on the insurer's part but the combined effect of two laws: the insurance legislation reimburses VAT only against an invoice, and the VAT legislation makes the VAT on company car repairs partly or fully deductible – what the company gets back from the state, the insurer does not pay out a second time. This article sets out the rule and the typical fleet cases in order, so that the settlement amount does not come as a surprise.
- Under Section 123 of the Insurance Act (Bit.), the insurer may reimburse the VAT on a repair only on the basis of an invoice that shows the VAT or from which it can be calculated – in calculation-based settlement without an invoice, the net amount is due.
- For a company entitled to deduct VAT, the insurer reimburses the non-deductible part of the VAT: for trucks this is typically zero, and for repair services on passenger cars it is half the VAT, because of Section 124(4) of the VAT Act (Áfa tv.).
- The deductible is not a separate VAT question: the right of deduction is tied to the invoice issued in the company's name, not to which part of the invoice the insurer paid – discuss the details with your accountant.
The invoice rule: Bit. Section 123
Under Section 123 of Act LXXXVIII of 2014 on insurance activities, for a service subject to VAT that is needed to restore the condition before the damaging event – material, repair and reinstatement costs – the insurer may reimburse an amount equal to the VAT only on the basis of an invoice that shows the amount of VAT or from which it can be calculated. Since 2009 the rule has applied to both casco and compulsory motor third-party liability insurance (MTPL); for MTPL, Section 32/A(2) of the MTPL Act (Gfbt.) also lays it down separately. From a fleet perspective, two cases follow from this. With invoiced repairs, the insurer starts from the amount on the invoice and reimburses the VAT depending on the company's right of deduction. With calculation-based settlement without an invoice – when the company takes the compensation but does not have the vehicle repaired, or repairs it in its own workshop – the insurer offers the net amount of the calculated repair cost; if the company later does have it repaired with an invoice, the VAT portion can typically be settled afterwards. The steps of claims settlement are described in the collision damage article.
Right of deduction: trucks, passenger cars, exceptions
Section 124 of Act CXXVII of 2007 on value added tax has a separate rule for passenger cars: under paragraph (1)(c), the VAT on goods needed to operate and maintain a passenger car is not deductible, and under paragraph (4), 50 per cent of the VAT on such services is not deductible. In practice the repair workshop's invoice is typically treated as a service, so for a passenger car of a company entitled to reclaim VAT, the insurer reimburses half of the VAT – the non-deductible part – and the company claims the other half in its tax return; some insurers' claims settlement guides describe this expressly. For trucks, if the company is entitled to full deduction, the insurer pays no VAT, since it does not remain a cost. Section 125 provides exceptions – for example where the passenger car is demonstrably used for resale, rental or taxi services – in which case the VAT on the passenger car is also deductible; the insurer then adjusts to this as well. This is why, at the start of claims settlement, the insurer asks for a VAT declaration in which the company states its entitlement to deduction – filling it in truthfully is the company's own responsibility. The connections between company car tax and the vehicle register are discussed in the company car tax article.
The deductible and VAT: a point of contention for accountants
Under the conditions, the deductible is the part of the loss that stays with the company: the insurer deducts it from the amount to be paid, and the company pays the difference to the workshop. The dispute arises because the right of deduction is tied not to the payer but to the invoice: the company deducts the VAT on the repair invoice issued in its name according to the rules above, regardless of the fact that the insurer transferred part of the invoice amount directly to the workshop. Whether the insurer calculates the deductible from the net or the gross loss amount depends on the conditions; if the settlement and the breakdown of the invoice differ, the difference requires reconciliation in the accounts – this is a tax-law question to which the insurance conditions give no answer. The strategic side of the size of the deductible is discussed in the deductible policy article; in accounting terms, the insurer's payment typically appears as other income and the repair as an expense – it is worth agreeing the exact accounting treatment with your accountant.
Calculation-based settlement: when is it a good decision in a fleet?
In a fleet it is common for the company not to have every scratch repaired but to take the calculated net amount and have the vehicle put right in its own workshop or later, together with other damage. This is legal and often reasonable, but two things are worth knowing. First, the insurer may deduct the unrepaired damage as pre-existing damage in the next claim, so record the decision in the vehicle list. Second, between the net amount of the calculation and the gross cost of a later, invoiced repair, the VAT portion stays with the company if it no longer submits the invoice to the insurer within the deadline set in the conditions. When reporting the claim, it is worth asking about the possibility of submitting the invoice later and the deadline for doing so.
Total loss, leasing, the financing company
In a total loss there is no repair invoice: the insurer pays the value at the time of the loss as defined in the conditions, minus the salvage value, and also aligns the net or gross nature of that value with the company's right of deduction and the conditions – this differs from one set of conditions to another, so it is worth asking about it when requesting quotes. For a financed vehicle, the party entitled to the payment is often the leasing company; the relationship between the payment and the outstanding debt is discussed in the GAP insurance article. With long-term rental, the insurance is often the lessor's contract, and the VAT question is also decided on the lessor's side – this is worth clarifying in the rental contract.
What should you do in practice?
When reporting a claim, fill in the VAT declaration accurately, and indicate if the vehicle falls under an exception under Section 125. Ask the workshop for an invoice in the company's name, broken down into parts and labour – the Gfbt. actually requires this for MTPL – and compare the claims settlement statement with it item by item: net amount, VAT portion reimbursed, deductible. If the settlement is contradictory, or the insurer paid net because the declaration was missing, as a broker I help where I can with putting the documents in order and finding your way in the stuck case; the tax classification is a matter for the accountant, and the content of the declaration is the company's responsibility. The insurer pays only for what is an insured event under your contract – and only the VAT that actually remains a cost for the company.
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Sources
- Insurance Act (Bit.) – Act LXXXVIII of 2014, Section 123 (njt.hu)
- VAT Act (Áfa tv.) – Act CXXVII of 2007, Sections 124–125 (njt.hu)
- MTPL Act (Gfbt.) – Act LXII of 2009, Section 32/A (njt.hu)
- Signal Iduna – Motor claims settlement guide (VAT declaration, 50% VAT reimbursement for passenger cars)
- Signal Iduna – VAT rule for claims settlement without an invoice
- Generali – Claims settlement information (quoting Bit. Section 123)
- GMT Legal – Gross or net: when must the insurer reimburse the VAT content of reinstatement costs?
