Risky business? VAT exemption limits for would-be insurance intermediaries

The latest case to consider the extent of the VAT exemption for "insurance intermediary" services has again highlighted the limits of the exemption.

The Tax Tribunal last week held that Riskstop Consulting Ltd was not an "insurance agent" and therefore did not make (VAT exempt) insurance-related supplies under the UK rules applicable to insurance intermediaries.

Riskstop was involved in the process of (i) evaluating for insurers the level of risk of a potential insured, and (ii) helping the potential insured to improve its risk profile.

Applying the test formulated in the recent decision in Westinsure (see our earlier blog on that decision), the Tribunal crucially found that Riskstop was not involved in bringing together the insurer and insured for the purpose of concluding insurance contracts.  It did not introduce potential prospects to insurers, nor did it put insurers in touch with prospects.  Riskstop could not therefore be an "insurance agent" under the VAT exemption legislation.  As it was accepted that Riskstop was not an insurance broker, that finding was fatal to Riskstop's claim for exemption.

It is worth noting in particular:

• HMRC's submissions that the scope of the insurance intermediary exemption should be interpreted restrictively, and that Riskstop's position was "pushing the envelope" of the VAT exemption.
• HMRC had on more than one occasion confirmed to Riskstop that its services were VAT exempt. However HMRC had subsequently re-examined the services with "fresh eyes", leading to a change of treatment (but not, it was claimed, of policy).

The effect is that Riskstop's services, and therefore other insurance-related services that are not provided by an "insurance agent" (or an "insurance broker") will not qualify for VAT exemption and will therefore be standard-rated.

The Tribunal noted that the decision in Westinsure is to be taken to the Court of Appeal.  Until such time the Westinsure and Riskstop decisions highlight that the VAT exemption must be interpreted narrowly.  Even service providers who are a "fundamental part of the insurance process" (as claimed by Riskstop) may not be able to rely on the VAT exemption, unless they are part of the chain that brings insured and insurer together.