LeadX v Her Majesty's Revenue and Customs
LeadX provides an internet platform where brokers can buy and sell details about potential customers for loans and insurance products.
A software programme sorts the information provided by brokers selling customer "leads" into various categories. Brokers wanting to buy such information would have already entered bids for specific lead types and the software simply allocates the specific lead to the highest bid.
Under LeadX's standard contract terms, buying and selling brokers were granted a non-exclusive licence to use the platform in return for 10% of the fee charged by the seller and a commission of 15% on the price paid by the buyer. Payment fell due when the lead was passed on to the buyer and did not depend on the buyer converting that lead into a sale.
The issue was whether LeadX's services were exempt from VAT because they provided intermediary services relating to insurance and the negotiation of credit.
Insurance and reinsurance are exempt from VAT under Directive 2006/112 (which replaced the Sixth VAT Directive on 1st January 2007). So are the services of an "insurance intermediary" when performed by insurance brokers and insurance agents. No definition is given of broker or agent, or of related services.
UK VAT legislation defines the services of an insurance intermediary as including the "bringing together", with a view to taking out insurance, persons seeking insurance and insurance providers, and the carrying out of work preparatory to the conclusion of the insurance contract.
The VAT Directive also exempts supplies connected with the negotiation of credit. The UK legislation defines the provision of intermediary services in this context as the bringing together of the parties and work preparatory to the conclusion of contracts. Advertising, promotion and the collection and collation of information are specifically excluded.
LeadX argued that the insurance exemption applied because it introduced prospective clients to insurance brokers and carried out work preparatory to bringing about a contract of insurance. It also maintained that the credit exemption applied because it provided potential applicants with suitable opportunities to conclude loan applications and so was engaged in the activity of negotiating credit.
HMRC disagreed on the grounds that LeadX's services consisted solely of the collection and sale of data and so were standard rated for VAT. LeadX appealed.
The VAT Tribunal concluded that LeadX's services did not fall within either the insurance or the credit exemption.
LeadX was not an insurance agent or broker because it had no relationship with insurer or insured and did not bring together potential parties to an insurance contract
The fact that its activities might eventually lead to a possible insurance contract was not sufficient. Those activities still had to have the character of insurance services, or at least form a close nexus with an insurance transaction.
These supplies, however, had nothing to do with insurance. LeadX was concerned with the buying and selling of prospective customer leads, not in matching customers' requirements with the most appropriate broker in order to find a suitable insurance provider. It did not care whether customers bought insurance or not.
Similarly, LeadX's motive in relation to potential loan applicants was to achieve the highest price for the customer lead, not to secure the best financial product for the customer. The supplies were about selling information, not about the making and negotiation of credit.
The outcome of this case ultimately depended on its facts. LeadX's services were not provided with the intention of securing a loan contract or an insurance contract. There was not enough connection between those activities and loans and insurance services for the exemption to apply.
The fact that LeadX had no relationship with insurer or insured was also a key factor in denying the insurance exemption.
The tribunal identified two elements to the role of insurance agent or broker under the VAT Directive: a relationship with the insurer and the insured (in order to bring the parties together) and activities typically undertaken by an insurance agent.
This relationship need not be a direct one. The recent case of J.C.M. Beheer BV demonstrated that an insurance sub-agent with only an indirect contractual relationship with an insurer can still benefit from the exemption.