HM Revenue and Customs Brief 31/10
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Issued 3 August 2010
HM Revenue & Customs position following the Court of Appeal Judgment in
Insurancewide and Trader Media Group
This Brief explains HM Revenue & Customs (HMRC) position following the Court
of Appeal judgment in Insurancewide.com Services Ltd and Trader Media Group Ltd
(Case ref A3/2009/1300).
The Court of Appeal found against HMRC and upheld the decision of the High
Court that certain supplies of insurance introductory services provided via the
internet are exempt from VAT. HMRC are not appealing this decision further.
The appeals of Insurancewide (IW) and Trader Media Group (TMG) concerned the
VAT liability of internet ‘click-through’ services and whether introductory
services such as these, that involve no intermediation of the contracts
themselves, qualify as exempt insurance intermediary services.
The facts in each case were slightly different in that:
- IW was a comparison website providing ‘click through’ services to insurer
or broker websites, whereas
- TMG provided ‘click through’ services from its Auto Trader car auction
site to a 3rd party co-branded broker website
Both were paid commission on successful take-up
IW lost its appeal at Tribunal as they were found not to be acting as an
insurance agent at any time and appealed to the High Court. On the other hand,
TM won its appeal as the Tribunal found that its services constituted insurance
intermediary services and we appealed the decision to the High Court. Given the
similarities in the two cases, the High Court agreed to hear the appeals
In May 2009 the High Court found that IW and TMG were insurance
intermediaries for the purposes of the VAT exemption and an act of introduction,
with no further involvement in the intermediation of the contract of insurance,
qualified for exemption as an insurance related service.
The Court of Appeal Judgment
On 22 April 2010 the Court of Appeal released its judgment. It held that it
was not necessary for there to be intermediation of the insurance contracts and
the introductory services provided by IW and TMG were exempt because they were
doing much more than providing a mere ‘click through’ facility to a broker or
insurer (that is, they were not acting as a ‘mere conduit’). In particular, the
companies concerned were also fulfilling the following functions:
- they identified those looking for insurance and provided them with access
to insurers who provided a range of competitive products
- they appraised and selected those insurers according to the
competitiveness of their pricing and products and their level of consumer
And, in addition to this:
- IW (in certain instances) also provided those seeking insurance with a
means of directing them effectively and efficiently to the most appropriate
insurers (whether directly or through an intermediary)
- TMG had input into the format of the co-branded broker website to which
the customer was directed and into the composition of the insurer panel based
on its understanding of the consumers using its website
The Court concluded that IW and TMG were not acting as subcontractors and,
taken overall, their relevant activities could be described as the business of
bringing together insurers and those seeking insurance
The Court also found that an insurance agent or broker is defined for the
purposes of the VAT exemption by:
- what they do and not by how they choose to describe themselves
- whether or not they fall within the definition of an insurance
intermediary for regulatory purposes
In light of the conclusions of the Court of Appeal as outlined above, HMRC
now accept 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 to a provider. This can be demonstrated by all of
the following four conditions being met:
- The services are provided by someone engaged in the business of putting
insurance companies in touch with potential clients or more generally acting
as intermediaries between the two parties (although this may not necessarily
be their principal business activity).
- The business provides the means (that is, 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 to another intermediary
in a chain leading to an insurance provider.
- That 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).
- The introducer also plays a proactive part in putting in place the
arrangements under which that introduction is effected.
For the purposes of condition 4 above, evidence that the introducer has been
proactive in putting in place the arrangements under which the introduction is
effected could, for example, take the form of some or all of the following:
- active endorsement of the insurer or the insurance product
- involvement in the selection of the insurance products and/or providers
- involvement in the process under which the insurance contract is entered
into, even though the intermediation of the contact itself is undertaken by a
3rd party (for example, by having input into what questions should be asked of
the prospective insured or the design of the 3rd party’s website)
- negotiating a special rate for the insurance product/s on behalf of its
customers or membership base
- some form of assessment of the customer’s requirements so that they are
directed to the most appropriate insurer for them
Previous case law has told HMRC that the means by which a business is
remunerated for its services, that is, whether by fee or commission or some
other means, is not determinative of the liability. Whilst remuneration based on
successful take-up may indicate an introduction has taken place it is not enough
in itself to determine exemption and it is always important to consider what is
actually being done rather than how it is paid for.
Although the judgment specifically concerned insurance intermediary services,
it does also provide some general guidance on the application of the exemption
to finance intermediary services. It must be borne in mind, however, that the UK
and EU law covering the exemption for finance intermediary services is different
from that for insurance intermediary services. For example, for most finance
intermediary services to be exempt, UK law requires businesses to be both
bringing together a prospective customer with a product provider with a view to
entering a contract for the provision of financial services and
carrying out work preparatory to the conclusion of those contracts.
Subject to the normal rules on capping and unjust enrichment, HMRC will pay
claims for overpaid tax charged on insurance introductory services that fall
within the findings of the Court of Appeal as outlined above.
Details of where to send your claim can be found in Notice 700/45 How to
correct VAT errors and make adjustments or available on the HMRC internet or
from the VAT Helpline on Tel 0845 010 9000.
We may reject all or part of a claim if repayment would unjustly enrich the
claimant. More details on ‘unjust enrichment’ can be found in Notice 700/45 How
to correct VAT errors and make adjustments or claims.
Where you are in any doubt about the correct treatment please contact the VAT
Helpline on Tel 0845 010 9000.
About the Author
© Crown Copyright 2010.
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Article Published/Sorted/Amended on Scopulus 2010-08-06 14:41:08 in Tax Articles