Partially upheld: unfair withholding of VAT from cash settlement and alternative accommodation costs; provision of incorrect information complaint against Aviva Insurance Limited

Decision detail

Summary

Mr and Mrs A complained that Aviva Insurance Limited unfairly withheld VAT from a cash settlement offer for subsidence repairs and refused to pay alternative accommodation costs upfront. The ombudsman found that Aviva's position on VAT was fair and reasonable, as VAT is an additional amount payable only when actually charged by a contractor, and the policy was silent on upfront VAT payment. The ombudsman rejected the complainant's interpretation of HMRC guidance and noted that the scale of the project made upfront VAT payment unnecessary. Similarly, requiring evidence of secured alternative accommodation before payment was reasonable. However, the ombudsman upheld the complaint in part because Aviva had provided incorrect information about HMRC guidance, causing unnecessary frustration, and directed payment of £150 compensation.

The Ombudsman's reasoning

The ombudsman applied FOS's general position that insurers may reasonably withhold VAT from initial cash settlements because VAT is an additional amount beyond the cost of works, payable only when actually charged by a contractor. The policy silence on VAT timing does not require upfront payment. The ombudsman rejected Mr A's interpretation of HMRC guidance, distinguishing between VAT being 'out of scope' for the insurer and requiring upfront payment to the policyholder. Given the scale of the project and staged nature of likely payments, withholding VAT at settlement stage would not cause financial disadvantage. The ombudsman suggested alternative arrangements (staged payments or direct payment to contractor) but did not require upfront VAT payment. For alternative accommodation, requiring evidence of actual secured arrangements before payment was reasonable.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website