Booking damages and insurance payouts: taxed, and is there VAT on it?
Written by Ilias Aarrass6 min read · Published on · Last reviewed on 
In short
Genuine damages carry no VAT because nothing is supplied in return; with an insurance payout on an asset only the difference from the book value counts in your profit.
- If you are paid because you supply, do or refrain from something, it is taxed with VAT.
- A payout for lost revenue or lost stock counts fully in your profit.
- If you buy a replacement, you can roll a book profit over with the reinvestment reserve.
- Your excess and your premium are deductible; fines you incur never are.
Your van is stolen, a client pays a fee for cancelling late, or your insurer pays out after water damage in your workspace. All three are called compensation in everyday speech, but for tax they are three different things. The question is always the same: is something supplied in return, and what happens to the book value of what you lost? This article lists the situations, with the VAT and the effect on your profit for each.
The main question: is something supplied in return?
For VAT the rule is: you only charge VAT if you supply or do something for the money you receive. Genuine damages, for example because someone damaged your equipment, are not payment for a supply. So no VAT applies, and you do not send an invoice for it but a statement or a letter.
It is different as soon as something is supplied in return. If a client pays because they cancel while you kept time free, that can be payment for a supply. A cancellation fee can also be taxed; the line and the practice are set out in no-shows and cancellations: what about VAT.
| Situation | VAT | Profit |
|---|---|---|
| Damages for damaged property | No VAT | Set against the book value |
| Insurance payout after theft of an asset | No VAT | Book profit or loss |
| Payout for lost revenue or business interruption | No VAT | Counts as profit |
| A fee for which you supply or refrain from something | VAT on the fee | Ordinary revenue |
An asset that breaks or is stolen
If a van, machine or laptop is on your balance sheet and is lost, you remove it from the balance sheet. You compare the payout with the book value at that moment: if the payout is higher you have a book profit and the difference counts in your profit. If it is lower you have a book loss you deduct. Book value is the purchase price less depreciation to that point, see depreciation.
If you buy a replacement in the same year or shortly after, you do not always have to settle that book profit immediately: with a reinvestment reserve you roll it over into the new asset. The conditions and the period are in the reinvestment reserve.
Worked example: a stolen van
- Purchase price of the van, three years ago
- € 24,000
- Depreciated over three years
- € 13,200
- Book value at the time of theft
- € 10,800
- Payout from the insurer
- € 13,500
Result: You have a book profit of € 2,700 that falls into your profit. If you buy a replacement van within the period, you can put that € 2,700 in a reinvestment reserve and set it against the new van, so you pay no tax on it this year.
VAT, excess and repair costs
If you have something repaired, you receive the repairer's invoice and deduct that VAT in your return, even if the insurer pays the bill. Insurers therefore usually pay VAT-registered businesses the amount excluding VAT: you get that VAT back from the tax authorities anyway. If you are exempt, for example in healthcare, that does not apply and the payout should include VAT.
Your excess is an ordinary business cost and therefore deductible, as is the premium itself. See business insurance. A fine you receive yourself, for example a traffic fine during work, is never deductible; that is different from damage you compensate, see traffic fines and car costs.
Payouts for lost revenue
If business interruption insurance pays out because you could not work for a period, that payout replaces your revenue and therefore counts in your profit. There is no VAT on it, because nothing is supplied in return. The same goes for a payout after a fire compensating lost stock: that stock was already booked as a cost, so the compensation belongs in your profit.
A payout from disability insurance is different: it does not fall into your business profit but is taxed as income in box 1, and the premium is deductible as an expenditure for income provision. See disability insurance and being ill without disability insurance.
Frequently asked questions
Do I charge VAT on damages?
Not if they are genuine damages, because nothing is supplied in return. If you are paid because you supply, do or refrain from something, it is taxed.
Does an insurance payout count in my profit?
For an asset, only the difference from the book value. For lost revenue or lost stock the whole payout counts, because it replaces your revenue or costs already written off.
Why does my insurer pay excluding VAT?
Because you get that VAT back through your return. If you are VAT exempt and can reclaim nothing, tell them: the payout should then include VAT.
Is my excess deductible?
Yes, that is an ordinary business cost, as is the premium. Only fines you receive yourself stay outside your deductions.
Sources
- VAT on subsidies, damages and voluntary contributionsBelastingdienst · belastingdienst.nl
- Reinvestment reserve: conditions and periodBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
