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Revenue & Customs Brief 31/10

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.

Background

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 jointly.

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 service

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

HMRC's position

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:

  1. 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).
  2. 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.
  3. 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).
  4. 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.

Claims

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.

Further information

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.

Issued 3 August 2010