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Guidance on VAT exemption for insurance intermediary services

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Two specific cases provide guidance on the treatment of insurance intermediary services and when they can be exempt.

The recent joined High Court cases of Insurancewide and Trader Media Group considered whether online ‘click thru’ introductory services qualify for exemption. Insurancewide is a comparison site where users click onto insurer or broker sites, whereas Trader Media Group also provides click thru services but from its Auto Trader car auction site to a third-party co-branded broker site.

At Tribunal, it was decided that Insurancewide did not do enough to be considered an insurance agent, whereas Trader Media Group did.

The High Court decided that both qualified as introductory services and were therefore exempt, even though the services were passive and apart from the ‘click thru’, there was no further involvement in the intermediation.

HMRC will accept claims subject to the normal capping and unjust enrichment rules, but have not accepted the decision. Therefore, although they will repay valid claims, they will also issue protective assessments, to be enforced if they ultimately win and the services become standard rated.

The second relevant case is the ECJ decision in Arthur Andersen & Co Accountants (C-472/03). The key part of this decision stated that, for their services to be exempt, insurance agents must be instrumental in bringing the two parties together by introducing potential clients to the insurer.

In its VAT Insurance Manual (VATINS5210), HMRC confirm that UK law is too widely drawn as a result of this case, and the exemption for the services of insurance agents should be restricted to introductory services.

However, they add that changes to UK law will be deferred pending progress of a EU review of VAT and financial services. In practice, that means affected businesses may either continue to exempt the wider range of insurance-related services until UK law is changed or choose to apply the EU view, only applying the exemption to relevant, introductory services and the standard rate to all other insurance-related services.

The choice will clearly depend on commercial relationships, and the benefits of increasing taxable supplies weighed against the ability of clients to recover input tax.