Not upheld: claims settlement and VAT treatment in cash in lieu payments complaint against Liverpool Victoria Insurance Company Limited

Decision detail

Summary

Mr A, as named driver on Mrs A's car insurance policy with LV, complained that LV had not paid a fair cash settlement following a third-party incident claim. The main dispute concerned LV's decision to deduct VAT from the cash in lieu settlement and withhold it pending evidence of repair and VAT payment. LV had partially upheld the complaint, apologizing for delays and the uncommunicated cheque cancellation, and paid £200 compensation plus a £94.99 reimbursement. The ombudsman found LV's VAT treatment to be reasonable and fair, as insurers cannot guarantee customers will use the estimated repairer or pay the estimated amount, and therefore properly withhold VAT until evidence of actual repair and VAT payment is provided. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied FOS's established approach that it is fair for insurers to withhold VAT from cash settlements until repairs are completed and evidence of VAT payment is provided. This is because once an insurer pays a cash settlement, the customer may obtain repairs at a lower cost than estimated, resulting in lower VAT. The ombudsman noted that each case must be decided on its own merits rather than based on outcomes in previous cases. Since Mr A had not provided evidence that repairs were carried out or that VAT had been paid, it was reasonable for LV to withhold the VAT element pending such evidence.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website