This Brief explains the HMRC position following the High Court judgment in Insurancewide.com Services Ltd and Trader Media Group Ltd (Case ref: CH /2007/APP/0806 & CH/2008/APP/0435).
The High Court found against HMRC that supplies of insurance introductory services provided via the internet are exempt from VAT. HMRC has been granted leave to appeal this decision to the Court of Appeal.
The appeals of Insurancewide (IW) and Trader Media Group (TMG) concern the VAT liability of internet ‘click thru’ services and whether introductory services such as this, that involve no intermediation of the contracts themselves, qualify as exempt insurance intermediary services.
The facts in each case are slightly different; IW is a comparison web-site providing ‘click thru’ services to insurer or broker web-sites whereas TM provides ‘click thru’ services from its Auto Trader car auction site to a third party co-branded broker web-site. Both are paid commission on successful take-up.
At tribunal, IW lost its appeal as they were found not to be acting as insurance agents at any time and appealed to the High Court. On the other hand, TM won its appeal as the tribunal found that their services constituted insurance intermediary services and HMRC appealed the decision to the High Court. Given the similarities in the two cases, the High Court agreed to hear the appeals jointly.
The High Court hearing took place in March 2009 and the judgment was released on 15 May. The 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.
Subject to the normal rules on capping and unjust enrichment, HMRC will pay claims for overpaid tax charged on insurance introductory services that follow the findings of the Court in IW/TMG. HMRC will raise protective recovery assessments under section 73(2) which will be enforced if HMRC are ultimately successful in the ongoing litigation.
Please note that HMRC see the judgment as applying to insurance introductory services only and do not see it as applying to introductory services relating to other financial contracts even if in other respects they are on ‘all fours’ with IW/TMG. This is because, for services that fall within items 1 to 4 of the UK finance exemption, intermediaries are required to be both bringing together the parties and carrying work preparatory to the conclusion of the contract. A key aspect of the decision in IW/TMG was the fact that UK VAT insurance law allows exemption for businesses that are either bringing together the parties or carrying out work preparatory. Claims will not therefore be paid in respect of finance introductory services following this judgment.
Details of where to send your claim can be obtained from VAT Notice 700/45 How to correct VAT errors and make adjustments or claims from the HM Revenue & Customs Helpline on Tel 0845 010 9000.
HMRC may reject all or part of a claim if repayment would unjustly enrich the claimant. More details on ‘unjust enrichment’ can be found at part 14 of VAT Notice 700/45 How to correct VAT errors and make adjustments or claims.
Protective recovery assessments are covered in V1-35
There may be direct tax implications where amounts of over-declared output tax are repaid to businesses and your attention is drawn to R&C Brief 14/09 issued previously.
Where you are in any doubt about the correct treatment please contact the Helpline on Tel 0845 010 9000.
Issued 21 September 2009