A recent Upper Tribunal decision highlights the limits of the VAT exemption for supplies by an insurance intermediary.

For insurance “intermediary” services to be VAT-exempt, all of the following conditions must be met:

  • an insurance broker or agent
  • provides services of an “insurance intermediary”
  • where those services relate to an insurance transaction
  • and are provided by the broker/agent in the course of acting as an intermediary.

Bringing together would-be insurers and insureds counts as “insurance intermediary” services for these purposes.

The appellant, Westinsure, provides an “interface” between brokers and insurers. The brokers pay a joining fee and annual membership fee (calculated by reference to the premium income generated by the broker) to join Westinsure’s alliance. Westinsure identifies suitable insurers to offer “exclusive” products, and beneficial commissions, to its member brokers. These insurers pay an annual commission to Westinsure.

According to the published decision, the advantages of the Westinsure arrangement are that:

  • the buying power of the broker members is harnessed to elicit more favourable terms and commission from insurers
  • minimum business requirements, often imposed on brokers by insurers, are waived.

Westinsure argued that its services to broker members were VAT-exempt insurance intermediary supplies. HMRC disagreed, stating that the services should be standard-rated for VAT.

The Tribunal held that Westinsure was not entitled to the VAT exemption:

  • the exemption applies only to services provided by an agent or broker. The question to ask was whether Westinsure’s activities amount to what an agent or broker typically does
  • a person is not an agent or broker if there is no relationship (direct or indirect) with the potential insured
  • on the facts, Westinsure was not an agent. It was not acting on behalf of insurers or the insured
  • Westinsure could only be a broker if it provided a service to a potential insured by finding a suitable insurer. On the facts, Westinsure was not a broker. It did not negotiate the terms of specific transactions, nor act for would-be insureds, nor assess the needs of would-be insureds. There was no relationship with the potential insured.

Although recent decisions in this area (notably InsuranceWide) have demonstrated that indirect relationships with a potential insurer and insured may be sufficient to enable a supply of services by an intermediary to qualify for VAT exemption, it remains critical that the intermediary is part of the chain bringing insurer and insured together. In Westinsure, the taxpayer merely facilitated its broker members forming such a chain.

To view the decision, click here.