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Out-Law Guide 5 min. read

Introductory insurance services and VAT

This guide is subject to UK law and was last updated on 26th August 2010.

A recently published Business Brief from HM Revenue and Customs (HMRC) will help determine when insurance introductory services - particularly online services - will be exempt from VAT.

The move follows the Court of Appeal's ruling in InsuranceWide and Trader Media, which held that operators of comparison websites that introduced insureds to insurers qualified for the exemption, even though they did not have a direct legal relationship with either party.

HMRC decided not to appeal this decision and, on 3rd August 2010, published Business Brief 31/10, setting out the conditions that must be satisfied for insurance introductory services to be exempt from VAT. It has also confirmed that it will accept repayment claims for overpaid VAT charged on such services.  

The exemption

The VAT Act 1994 provides that services of an insurance intermediary are exempt if they are related to an insurance transaction and are provided by a broker or agent in the course of his acting in an intermediary capacity between an insurer and a person seeking insurance.

The services of an insurance intermediary are further defined as including the bringing together of insurers and prospective insureds, carrying out work preparatory to the conclusion of insurance contracts, assisting in the administration and performance of such contracts and the collection of premiums. Specifically excluded from the VAT exemption is the supply of advertising or promotional services.

InsuranceWide and Trader Media

InsuranceWide and Trader Media both operated websites that enabled prospective insurance customers to obtain quotes from a panel of insurers.

HMRC argued that both companies merely provided a "click-through" facility to a broker, agent or insurer. They themselves were not insurance brokers or agents because they had no legal relationship with either the insured or the insurer and no involvement in the negotiation of the contract or its preparation, the collection of premiums or the handling of claims. The act of introduction, on its own, was not enough.

In the case of InsuranceWide, the VAT tribunal agreed with HMRC that it was merely an introducer and not an insurance agent, so the VAT exemption did not apply. However, in the Trader Media case, the VAT tribunal found that the services provided were exempt. HMRC appealed, as did InsuranceWide.

The High Court and subsequently the Court of Appeal held the exemption applied in both cases. The Appeal judges were satisfied that both InsuranceWide and Trader Media were providing services that were much more than a mere "click through" introduction. They were: 

  • identifying those looking for insurance and providing them with access to insurers who provided a range of competitive products;
  • appraising and selecting insurers according to the competitiveness of their pricing and products and their level of consumer service;
  • providing those seeking insurance with a means of directing them effectively and efficiently to the most appropriate insurers (either directly or through an intermediary);
  • having an input into the format of a co-branded website to which a customer was directed and into the composition of the insurer panel, based on an understanding of the consumers using the website.

These activities were characteristic of an insurance broker or agent and were vital to the process of introducing prospective insureds to insurers, even if they were only part of a chain.

HMRC's position

HMRC now accepts that insurance introductory services will be exempt from VAT when a provider is doing much more than acting as a "mere conduit" through which a potential customer is passed on to an insurance provider. 

But all the following conditions must be satisfied before the exemption will apply:

  • the services must be provided by someone engaged in the business of putting insurance companies in touch with potential clients or more generally acting as intermediaries between two parties (although this may not necessarily be their principal business activity);
  • the business provides the means (i.e. by way of an internet "click through" or some other form of introduction) by which a person seeking insurance is introduced to a provider of insurance or another intermediary in the chain leading to an insurance provider;
  • the introduction takes place at the time a customer is seeking to enter into an insurance contract, although in some instances, an insurance contract may not actually go on to be finally concluded; and
  • the introducer also plays a proactive part in putting in place the arrangements under which that introduction is effected.

According to the Business Brief, playing a proactive part might include actively endorsing the insurer or the insurance product, being involved in the selection of the insurance products and/or providers, or being involved in the process that leads to an insurance contract, even though the intermediation of the contract itself is undertaken by a third party.

An example of this might be if the introducer has some input into the questions asked of prospective customers or into the design of the third party's website.

Other ways in which an introducer might play a proactive part include negotiating a special rate for the insurance on behalf of customers or the membership base, or carrying out some form of assessment of the customer's requirements, so that they are directed to the most appropriate insurer.

Repayment claims

Businesses providing insurance introductory services, or who have provided such services in the past, should claim for overpaid output VAT accounted for on such services.

These will be subject to the usual four-year time limit on making repayment claims and the rules on unjust enrichment, which allow HMRC to refuse a repayment if to do so would benefit a party who has not borne the ultimate cost of the overpaid VAT.


John Christian, Tax Partner at Pinsent Masons LLP, said the new guidance would provide greater certainty, but warned that HMRC will still be keeping a close eye on distribution arrangements.

"The Court of Appeal's decision was welcome in that it supported a wider application of the insurance exemption than HMRC had previously allowed," he said. "It confirmed that introducers, who bring together insurers and potential insureds, even if they play a passive role in the insurance process, may benefit from the exemption. 

"The new guidance now clearly sets out the factors that must be applied. This should give more certainty to the treatment of distribution arrangements – particularly those which are web-based, where the position has been unclear since the original Tribunal decision in InsuranceWide.

"Taxpayers now have a much clearer set of indicators to work with, but need to ensure they are properly reflected in the set-up and operation of distribution arrangements.  HMRC are still likely to scrutinise closely arrangements which are close to advertising and promotional services, which are specifically excluded from the VAT exemption."

Christian also warned that recent cases have shown that HMRC does not always regard itself as bound by published guidance.

"Taxpayers should consider requesting specific confirmations for arrangements where they are relying on the guidance. And of course, taxpayers who are supplying or have supplied insurance introductory services should consider making a claim for overpaid tax."

Contact: John Christian [email protected] (0113 294 5296)


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