On 23 November 2016, the First-tier Tribunal3 held that, based on the facts before it, an insurance broker’s supplies were made to a non-EU insurer, rather than UK based insureds, with the effect that the broker was entitled to recover input tax incurred by it under the applicable UK VAT legislation.
Under UK VAT rules, a VAT-registered business may recover input tax incurred by it relating to “insurance intermediary” supplies it makes to non-EU recipients.
Unicom was an insurance broker which claimed that its supplies (of insurance intermediary services) were supplied overwhelmingly to an insurer based in Gibraltar (ie outside of the EU). HMRC argued that Unicom made supplies to consumers (the insured) who were located in the UK. The only issue before the Tribunal was whether the supplies were made to the insurer in Gibraltar (in which case the taxpayer’s appeal would succeed) or whether they were made to the insured(s) in the UK (in which case HMRC would be correct to deny input tax recovery).
The Tribunal, relying on the case of Winter v Irish Life Assurance plc4 considered that any presumption that an insurance agent or broker is the agent of the insured (and not the insurer) can be easily rebutted if the facts of the actual circumstances support a conclusion that the intermediary acts for the insurer. Applying these circumstances the Tribunal found that:
• under the agreement between Unicom and the insurer, properly construed, Unicom provided insurance intermediary services as agent for the insurer. In return the insurer paid Unicom a commission, which Unicom deducted from premiums received from the insureds before paying over to the insurer
• HMRC was incorrect in its view that the insured would be required to consent to Unicom acting as agent for the insurer
• statements made by Unicom on its website, which arguably gave the impression that it was “acting” on behalf of the insureds, did not amount to contractual terms which could overule the provisions of the contract between Unicom and the insurer. In particular the Tribunal noted the lack of terms and conditions on the website, and the fact that Unicom did not regard its website as a significant marketing tool or source of new business.
The Tribunal was not swayed by HMRC’s argument that in referring to the insured as its “client”, Unicom had intended to act as agent for the insured. The Tribunal judge noted that, by analogy, the HMRC refers to taxpayers as “customers”!
Considering the contractual arrangements before it, the Tribunal (adopting the analysis as set out by the Supreme Court in Airtours v HMRC5 , on which see here) concluded that the supplies by Unicom were made to the insurer in Gibraltar and this reflected the economic reality in this case.
The decision can be viewed here.