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Following its loss on Appeal of the InsuranceWide and Trader Media VAT cases, the UK tax authorities have declared last week that they will not appeal against the judgement.  This means insurance introductory and comparison websites will be treated as a VAT exempt service, opening up the opportunity to reclaim overpaid VAT.  However, it may lead to an unexpected VAT bill for insurers with service agreements with such websites.

UK taxman in conflict with Europe

UK VAT rules are governed by Directives issued from the EU Commission in Brussels.  Under current EU regulations insurance services – including brokers and agents – are VAT exempt.  This means that they do not charge VAT, but also cannot recover any VAT on their own costs (marketing, office costs, outsourced services etc.). 

The UK taxman, HMRC, took the view that this exemption did not apply to many insurance price comparison websites.  Their opinion was that the sites were not materially part of the line of communication between the insurer and the insured or participated in the price or terms negotiations.  Further, they did not take on the traditional roles of insurance brokers, including collecting and remitting premiums or claims handling.  HMRC viewed such sites as merely advertising services, which are not VAT exempt and should charge VAT to their customers.  For some time, this was viewed as being in contraction of the EU VAT rules, and was first challenged in the InsuranceWide.com test case.

HMRC submits to Appeal Court Verdict

The tax authorities have been InsuranceWide.com, one of the first comparison sites, with great determination for a number of years - taking it to the High Court and then the Court of Appeal.  However, it lost at all stages.  In the latest round, at the Court of Appeal in April this year, it was ruled that the provision of VAT exempt intermediary services included ‘click through’ introductions without further involvement in the process.  It held that such websites were also providing a wider service by bringing together select insurers for the target market, including the competitiveness of the deals on offer.

HMRC last week confirmed that it will not pursue these cases any further and will consider comparison websites as VAT exempt.  It has also issued new guidance to help the industry understand the rules it will apply in the future to determine whether VAT is liable or not.

Richard Asquith, MD of TMF VAT & IPT Services commented:

“This brings to an end a long battle HMRC was waging on comparison sites.  Given the conflict with EU legislation, it was never clear that it would win.  It now confirms that comparison sites do not need to charge their customers VAT as an exempt service.

Any comparison site may be able to recover VAT that it has suffered – and this has a three year cap.

However, there may be an unexpected nasty consequence for some insurers with service agreements with introductory websites.  These agreements often include a clause that puts the liability for any unrecoverable VAT onto the insurer.  Since the comparison sites are now confirmed as exempt, and therefore cannot reclaim their input VAT, this bill may switch to the insurer under these clauses.  The insurers trapped in this situation may wish to require the comparison site to force through a repayment claim to take the sting out of this liability.”

About TMF VAT & IPT Services

TMF VAT & IPT Services offers international VAT and Insurance Premium Tax compliance services.  It is part of the TMF Group, which provides independent accounting and corporate secretarial services from 87 offices in 66 countries worldwide.  www.tmf-vat.com

Contact
Richard Asquith, Managing Director
TMF VAT Services
9  Cloak Lane                                                           
London EC4 2RU, UK
www.tmf-vat.com
      
T: +44 (0)870 067 8881     
richard.asquith@tmf-group.com