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The ABI's indirect tax in-tray: the issues affecting insurers

David Jordorson, Policy Adviser, Taxation David Jordorson, Policy Adviser, Taxation

You could be forgiven for thinking that as the HMRC and HM Treasury are in EU Referendum ‘Purdah’, there is little going on in indirect tax issues that impact on insurers. But you would be wrong.

Here is a quick run through of what is in the ABI’s tax ‘in tray’ at the moment.

Aspiro – significant impact for UK insurers

Probably the most significant VAT decision affecting the insurance industry for some years, this will impact on insurers outsourcing claims handling and claims administration services to third parties. For a detailed analysis of the Aspiro CJEU judgment, read the article I co-wrote for this month’s Tax Journal. HMRC and HMT are pondering the implications and we do not expect to see sudden moves without due consultation. Undoubtedly the potential for change and additional cost is of great concern, particularly in the UK, and we are staying close to HMRC and HMT to make our members’ views known.

Moving the goalposts?

HMRC are looking at developing some Use & Enjoyment provisions changing the place of supply of services to address what they consider to be “specific mischief”: first, we can expect – sometime later in the year - some provisions relating to work on goods (repair services) provided under a contract of insurance, which will change the place of supply from the location of the insurer to the place of performance of the services. Subsequently, we can look forward similar provisions in relation to the supply of advertising to the financial sector – HMRC are currently consulting on this and draft provisions will follow.

Case law analysis:

We understand that Wheels Private Hire is going to the Upper Tax Tribunal in September. In this case, the Appellant provided a radio service to taxi drivers and hired cars to self-employed drivers for a weekly charge. An additional charge was made if the drivers also wanted third party insurance cover. HMRC argued – unsuccessfully at this stage – that this was a single supply of a car with a radio service, while the appellant argued it was linked to a block cover insurance policy. The tribunal found that the insurance provision would provide protection for the interests of the driver.

HMRC are appealing against the outcome. This is a VAT case, but if the appellant remains successful and the charge is for insurance, it will be VAT-exempt. HMRC will doubtless then argue that the firm qualifies as a Connected Person in providing insurance in conjunction with the supply of a motor vehicle - and the higher rate of IPT will apply at the same rate as VAT. So there is unlikely to be a happy outcome for the taxpayer.

In Westinsure, concerning the liability of a broker network, the taxpayer has dropped its appeal after failing at the First Tier Tribunal and the Upper Tax Tribunal. While Counsel for the appellant argued the business “oozed insurance”, this proved not to be enough. Similarly, there will be no appeal from Riskstop Consulting, which evaluated potential insureds, but at the First Tier Tribunal was found to be neither an insurance broker nor an insurance agent: its services remain subject to VAT.

Insurance Premium Tax

After two consecutive rate rises within a year, this is no longer a ‘Cinderella Tax’ and HMRC report the emergence of Ugly Sisters in the form of IPT planning schemes. Some of these will be added to the list of Disclosure of Tax Avoidance Schemes (DOTAS) provisions.

The ABI has lobbied strongly against further rate rises. To put members on a clearer footing when future rises come, we have led industry engagement with HM Treasury and HMRC to revisit the arrangements for how rises are implemented – the current agreement dates from 1995 and a new model is needed to better reflect the modern industry.

In brief

Consultations have been coming thick and fast from HMRC in recent months – there seems little that is settled policy. Briefly, an ongoing review of the UK VAT grouping provisions (announced in Revenue and Customs Brief (RCB) 3/16) and an imminent clarification on the VAT deduction by holding companies (RCB in draft only so far) are among the most recent and significant – if you’d like to make your views known, please get in touch.

David Jordorson is Policy Adviser, Taxation at the Association of British Insurers (ABI)

These issues and many more will be discussed at the ABI's Insurance Tax Convention 2016, to be held in Brighton on 6-7 September.

Last updated 29/06/2016