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Steve Allen of VAT Advisers Ltd reports on a recent VAT case.

Introduction - Insurance Intermediary Exemption

On 22 April 2010, the Court of Appeal (CoA) released its decision in the joined cases of InsuranceWide.com Services Ltd and Trader Media Group Ltd, which concerned the scope of the insurance intermediary exemption. The Court found unanimously for the taxpayers.

Both companies provided online introductory services between people seeking insurance and a panel of insurers. Customers were attracted to the companies’ websites because of their reputation in the market as facilitators for the obtaining of insurance. The High Court had previously found for the taxpayers, confirming that both qualified as insurance brokers/agents for the purpose of the VAT exemption, and that the services they rendered were not merely advertising services.

Court of Appeal's Findings

At the CoA, HMRC argued that neither company was acting as an insurance broker or insurance agent, but merely providing a ‘click-through’ facility. HMRC urged the CoA to make a referral to the ECJ, but it rejected this along with all of HMRC's other submissions. The Court held that:

• Exemption is not dependent on whether a business describes itself as an insurance agent or broker. The critical point is what they do
• Insurance regulatory definitions should only be used for VAT purposes to the extent that they reflect legal realities and practice
• The essential characteristics of an insurance broker or agent are that they put insurers in touch with potential clients, or act as intermediaries between insurers and clients/potential clients
• Exemption does not require a person to be carrying out all the functions of an insurance agent or broker
• The relevant UK law was clear, so an ECJ referral was not needed

HMRC v InsuranceWide.com Services Ltd; Trader Media Group Ltd [2010] EWCA Civ 422

Future Developments

As the Court outlined a number of principles on the issues, the case is likely to be referred to repeatedly in resolving liability in future. Upon applying those principles to the facts in the joined cases, the CoA had no trouble in finding that the supplies were exempt. In moving away from regulatory definitions, the Court's decision hopefully ensures that future interpretation of the exemption keeps pace with commercial developments in the modern insurance world. Notably, the Judges acknowledged that the application of the exemption is highly fact-dependent. Both companies were seen to provide much more than a mere ‘click-through’ service, with specific note taken of their involvement in selecting the most appropriate insurer for potential clients (using pricing, products, and customer service).

HMRC has apparently sought permission to appeal to the Supreme Court. However, the confidence and unanimity of the Court’s decision suggests it will be refused, and as an ECJ referral also looks blocked, the litigation may well end here. This would be great news for those cases which have been stood behind this appeal. If a business has charged VAT on similar services, but has not yet made a claim, it should consider making one now.