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HM Revenue and Customs Brief 33/12


HM Revenue and Customs -Tax Authorities

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Issued 4 December 2012

Enquiries from the European Commission into the UK's VAT exemption of insurance mis-selling reviews and helpline services

Purpose of this Brief

This Brief announces a change in the UK VAT treatment of supplies to insurers of certain mis-selling review services and helpline services following enquiries received from the European Commission ('the Commission').

Who needs to read this?

  • Insurers
  • Businesses that supply helpline services to insurers
  • Businesses that might supply insurers with mis-selling review services in the future should further reviews be instigated by the regulatory authority.

This Brief does not affect businesses that supply banks and other lenders with Payment Protection Insurance ('PPI') mis-selling review services. PPI review services have always been subject to VAT and will not, therefore, be impacted by this change.

1.1 Background

The UK currently exempts from VAT mis-selling review services and stand-alone helpline services supplied to insurers by insurance intermediaries, subject to certain conditions being met. This policy is set out in Paragraph 10.3 Notice 701/36 Insurance and Paragraph 10.4 Notice 701/36 Insurance and in sections VATINS5410 and VATINS5420 of the VAT Insurance guidance manual.

In both cases, the policy to exempt these services is based on UK case law (the relevant decisions are Century Life Plc [2000] EWCA Civ. 366, which concerned the provision of pensions mis-selling review services by an insurance agent; and C & V (Advice Line) Services Limited VTD 17310, which concerned the services of a legal helpline that, amongst other things, advised insurance policyholders on the making of insurance claims).

The Commission has recently queried the UKs basis for treating such services as exempt and has expressed the view that the services are taxable in light of a number of recent judgments of the European Court of Justice ('ECJ') on the application of the EU VAT exemption to insurance related services.

Having reviewed the position, HM Revenue & Customs (HMRC) has concluded that the Commission is correct in its view that these services are taxable and that the UK case law which had previously indicated otherwise has now been superseded by subsequent decisions of the ECJ. Consequently HMRC has informed the Commission that its current policy to exempt these services will be amended from a future date.

1.2 The new VAT treatment

1.2.1 Pensions mis-selling review services

HMRC no longer accepts that exemption applies to the services described in Paragraph 10.3 Notice 701/36 (Pensions mis-selling review services carried out on behalf of insurers) and in sections VATINS5410 and VATINS5420 of the VAT Insurance guidance manual. HMRC now considers all mis-selling review services to be liable to standard rated VAT.

There has been no change in the VAT treatment of PPI mis-selling review services. HMRC has always maintained that these services are liable to VAT at the standard rate and the VAT treatment for mis-selling reviews outlined in HMRC guidance has never applied to them. For the current exemption to apply the third party provider must be an insurance agent acting as an intermediary between an insurer and an insured party. This means that the insurer must be the party that is legally liable to have the reviews carried out and bear any claims for compensation or other redress. PPI reviews, however, are being carried out on behalf of banks and other lenders because, in this instance, they are the parties identified by the regulator as being liable for the mis-selling.

1.2.2 Helpline services

HMRC no longer accepts that exemption applies to the services described in Paragraph 10.4 Notice 701/36 (helplines supplied to insurers to provide assistance to insured parties on matters such as variations of contract and the making of claims).
However, if an insurance broker or agent provides helpline services to an insurer as part of a single supply which also includes the provision of exempt insurance related services (see section 9 Notice 701/36 Insurance), the supply will have a single VAT liability which will be determined in accordance with its principal element (if there is a principal element to which other elements are ancillary) or its main focus or predominant nature. For example, if helpline services are provided as an ancillary part of a contract for exempt insurance related services, the supply will be exempt from VAT.   

1.2.3 Date from which new policy takes effect

Businesses that are affected by the change in policy are required to start accounting for VAT on any supplies made on or after 1st April 2013.

If they have relied on HMRC guidance to treat supplies as exempt in the past, they will not be required to retrospectively account for VAT on those supplies as long as they met the terms of the published policy. They will not, however, be able to recover any input tax against those supplies that remain treated as exempt.

The VAT Insurance guidance manual and Notice 701/36 will be updated in due course.

1.3. Further information about Commission's query

In addition to querying the treatment of pensions mis-selling reviews and helpline services, the Commission has also queried HMRC's basis for applying exemption to the services of P&I Club Managers, as described in Paragraph 10.2.1, Notice 701/36. Having reviewed this matter, HMRC concluded that the services of P&I Club managers have been correctly treated as exempt but that the notice does not accurately portray the range of services that the managers actually provide. The Commission has accepted that, when correctly characterised, the services of P&I Club managers are properly exempt. The VAT insurance notice will be updated shortly to reflect the true position.

About the Author

Crown Copyright 2012.

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Article Published/Sorted/Amended on Scopulus 2012-12-11 09:04:26 in Tax Articles

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