Prudential agreed to transfer its general insurance business to a number of companies in the Winterthur group. A number of agreements were signed, including a reinsurance and administration agreement, a marketing agreement, a renewal rights agreement and a business sale agreement. Prudential received an upfront payment in consideration for the transfer, as well as commissions payable under the marketing agreement arising on insurance contract renewals. The High Court considered whether the commission payments were subject to VAT.

It was argued that the commission payments were exempt from VAT on two grounds.  

Firstly, it was argued that the transfer of the business from Prudential to Winterthur was a transfer of a going concern (“TOGC”) for VAT purposes and therefore neither a supply of goods nor services. The commission payments were part of the consideration for a TOGC and therefore no VAT arose. This was rejected by the High Court.  

Secondly, it was argued that the commission payments were for insurance brokerage or agency services and therefore exempt from VAT. The High Court said that the exemption did not apply in these circumstances, since Prudential, in acting under the contracts, did not bring together Winterthur and the insured parties. To meet the exemption, Prudential would have had to be engaged in putting insurance companies in touch with potential clients and providing services which were vital to that process. Prudential merely passed on renewal information to Winterthur and this did not constitute the provision of “brokerage” or “agency” services.

In rejecting both these arguments, the High Court therefore found that the commission payments were subject to VAT.  

The case provides further guidance on the (narrow) meaning of “insurance broker” for the purposes of VAT and emphasises the need for the broker to bring together the insurer and the insured.  

The case also shows that careful consideration needs to be given to the VAT liabilities on sales and purchases of insurance businesses. The assumption that there is going be no VAT needs to be fully tested.