BIR Form 2307 for Car Body Shops: Does an Insurance Company Withhold on a Collision Claim?

When a non-life insurance company pays a car body shop directly to settle a policyholder’s covered collision repair, the insurer is withholding on an ordinary business payment — not merely processing a claim — and must withhold 2% expanded withholding tax (EWT) and issue BIR Form 2307 to the shop, the same way any company withholds on a contractor’s parts-and-labor invoice. The outcome flips, though, if the insurer instead reimburses the policyholder directly, because that payout runs to its own customer, not to the shop.

This guide is part of the BIR Form 2307 series. It covers when an insurer counts as the withholding agent on a collision repair bill, the ATC code and rate that applies, how a direct-pay arrangement differs from a reimbursement payout, and a worked claim example.

Is an insurance company a withholding agent when it pays a body shop? #

Yes — a non-life insurer is a juridical person conducting a trade or business, and settling a policyholder’s collision claim by paying a body shop directly is an ordinary cost of running that insurance business, so the general withholding rule applies the same way it would to any other corporate payor. RR No. 2-98 sets the test for who must withhold this way:

“(A) In general, any juridical person, whether or not engaged in trade or business; (B) An individual, with respect to payments made in connection with his trade or business…”

— RR No. 2-98, Section 2.57.3(A)–(B)

Nothing in that test carves out insurers, and nothing about why an insurer is paying — to settle a claim rather than to simply buy a repair for its own fleet — changes who the payor is. A direct-repair or accredited-shop arrangement, where the insurer pays the body shop according to the shop’s own repair estimate once the claim is approved, is functionally identical to a logistics company paying a dealership service center for fleet maintenance, which this series already covers in BIR Form 2307 for Auto Repair Shops and Dealership Service Centers.

What ATC code and rate apply to the repair bill? #

A collision repair invoice that bundles parts and labor into one bill is withheld at the flat 2% general contractor rate, the same bracket that applies to any other combined parts-and-labor repair job, regardless of who the payor is.

As with any other repair shop, the insurer withholds on the invoice amount exclusive of VAT, since EWT is computed on the gross income payment before VAT is added, consistent with RR No. 2-98’s general computation rule. A non-VAT-registered body shop’s invoice instead carries 3% percentage tax rather than 12% VAT, but the 2% EWT withheld by the insurer is unaffected either way — a payee’s VAT status changes what’s added to the invoice, not whether EWT applies to it, the same point this series makes in Does a Non-VAT Registered Supplier Still Get a BIR Form 2307?

Direct payment to the shop vs. reimbursement to the policyholder #

The withholding outcome depends entirely on who the insurer’s check is actually made out to — the body shop performing the work, or its own policyholder getting reimbursed for a repair they already paid for. These are two different payments with two different answers:

1. Direct-repair or accredited-shop payment. The insurer pays the body shop directly, following its own adjuster’s approved repair estimate. The body shop is the insurer’s payee for that transaction, so the insurer withholds 2% EWT (ATC WI120/WC120) and issues BIR Form 2307 to the shop.
2. Reimbursement to the policyholder. The policyholder pays the body shop out of pocket (often at a non-accredited shop of their own choosing), then submits the receipt to the insurer for reimbursement. The insurer’s check goes to the policyholder under the insurance contract — there is no payment relationship between the insurer and the shop to withhold on. Whether the policyholder’s own payment to the shop gets withheld then turns on whether the policyholder is paying in connection with a trade or business, following the same individual-withholding test this series covers in Do I Need to Withhold Tax on a Home Renovation Contractor? — an ordinary individual policyholder paying for a personal vehicle’s repair generally is not a withholding agent at all.

A fleet operator that insures its company vehicles and receives a reimbursement payout for repairs it already paid for is the one case where the second scenario can still trigger withholding — not because of the insurance payout itself, but because the fleet operator was already a withholding agent on its own payment to the shop, independent of how the insurer later reimburses it.

Worked example: an insurer’s direct-repair settlement #

SecureDrive Insurance Corporation approves a collision claim for its policyholder’s sedan and pays ProBody Collision Center, Inc., an accredited corporate body shop, directly under its direct-repair program. ProBody’s combined parts-and-labor repair estimate comes to ₱120,000, VAT-exclusive.

SecureDrive remits the ₱2,400 withheld through BIR Form 0619-E monthly and BIR Form 1601-EQ quarterly, lists ProBody on its Quarterly Alphalist of Payees, and issues ProBody a BIR Form 2307 for the quarter. ProBody credits that ₱2,400 against its own income tax due. Had SecureDrive instead reimbursed the policyholder directly for a repair the policyholder already paid for at an independent shop of their own choosing, no withholding would apply to that reimbursement at all — the policyholder, an individual with no business connection to the expense, was never a withholding agent on the original repair payment either.

Frequently asked questions #

Does an insurance company have to withhold tax when it pays a car body shop directly for a client’s claim? #

Yes. A non-life insurance company is a juridical person engaged in trade or business under RR No. 2-98, Section 2.57.3(A), and settling a policyholder’s collision claim by paying an accredited or direct-repair body shop is an ordinary cost of its claims-adjudication business. The insurer must withhold expanded withholding tax (EWT) on that payment and issue BIR Form 2307 to the body shop.

What ATC code and rate apply to a collision repair bill paid by an insurer? #

A combined parts-and-labor collision repair invoice is withheld at the flat 2% general contractor rate — ATC WI120 if the body shop is individually owned, or WC120 if it is organized as a corporation — the same bracket this series applies to auto repair shops and dealership service centers generally.

Does withholding change if the insurer reimburses the car owner instead of paying the body shop directly? #

Usually, yes — it disappears. A reimbursement check the insurer sends to its own policyholder is a claims payout under the insurance contract, not a payment to the body shop for services rendered, so there is no privity between the insurer and the shop to withhold on. Whether the policyholder’s own later payment to the shop gets withheld then depends on whether the policyholder is withholding in connection with its own trade or business, not on the insurance payout at all.

Does a non-VAT registered body shop still get a BIR Form 2307 from the insurer? #

Yes. A payee’s VAT or non-VAT (percentage tax) registration status has no bearing on whether expanded withholding tax applies to the payment. A small, non-VAT-registered panel-beating shop paid directly by an insurer under a direct-repair arrangement still receives a BIR Form 2307 for the amount withheld.

Who keeps the BIR Form 2307 for an insurer-paid collision repair — the insurer, the shop, or the policyholder? #

The body shop keeps the BIR Form 2307, because the shop is the payee the tax was withheld from. The shop uses it to credit the withheld amount against its own income tax due; the insurer keeps a copy as its withholding agent’s supporting record, and the policyholder — who isn’t a party to that withholding at all — has no claim on the certificate.

Summary #

An insurance company that pays a car body shop directly under a direct-repair or accredited-shop arrangement is withholding on an ordinary business payment, no different from any other corporate client settling a contractor’s bill — 2% EWT (ATC WI120/WC120) on the full parts-and-labor invoice, with BIR Form 2307 issued to the shop. That obligation disappears only when the insurer’s money runs to the policyholder instead, as a reimbursement under the insurance contract rather than a payment to the shop. See BIR Form 2307 for Auto Repair Shops and Dealership Service Centers for the general parts-vs-labor mechanics this scenario builds on, and Does a Non-VAT Registered Supplier Still Get a BIR Form 2307? for why a body shop’s own VAT status doesn’t change the answer.