We own and let out a pub/restaurant in Great Chesterford. We are VAT registered on the flat rate scheme (FRS). The rebuild cost for insurance is approximately £2.4m, including VAT.  At present, we insure to include VAT. We are trying to reduce the premium for tenants. If we insure for £2m excluding VAT, could we swap to the normal VAT rate if we did have a claim, to enable us to reclaim the VAT? (I recall reading quite a while ago that we could change if we had a large amount of VAT to recover). 

Arthur replies: 

You can leave the FRS before any reinstatement work starts and then insure for the net-of-VAT rebuild cost, but doing so after damage has already occurred is unlikely to let you recover the VAT on the repair contract. If you stayed on the FRS, your tenant would be under-insured for the VAT element (about £400k on a £2m net rebuild), so cutting the sum insured now would be risky unless you commit to switching schemes in advance and keep HMRC’s timing rules firmly in mind.