Can insurance brokers reclaim vat

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Contact us. View Cart 0 Item. VAT matters - June Jun 01, VAT deductibility for life insurance companies The provision of insurance is a VAT-exempt activity and therefore, VAT incurred on costs in respect of the provision of insurance is generally not recoverable with the exception of insurance services to customers located outside the EU.

However, the Revenue guidance acknowledges that a life insurance company typically also generates income from savings and investment products which are written as a life insurance policy, but are similar to, and in competition with, other financial products offered by banks, fund managers etc. The guidance confirms that VAT recovery on costs incurred by a life insurance company relating to these types of products should typically be based on the non-EU financial investments made by the life insurance company in respect of the products.

Consequently, VAT should be recoverable on costs that are directly attributable to dealing in non-EU securities, while VAT recovery should be disallowed on costs directly attributable to dealing in EU securities.

Where the life insurance company has costs that relate to both its insurance and investment activities, a VAT recovery rate methodology must be formulated using a methodology that correctly reflects how costs are consumed and has due regard for the total supplies of the business. VAT deductibility for the funds industry This guidance note sets out the VAT deductibility rules for regulated Irish funds where the fund is engaged in the execution of trades in financial securities.

The guidance does not apply to funds investing in real estate or other non-financial assets. As with other entities, a fund is entitled to VAT recovery on its costs to the extent it is engaged in the supply of financial services to non-EU counter-parties. Revenue consider this to be generally the most reliable method to correctly reflect the use that the costs incurred are put to.

The principles of place of supply and place of belonging are also important for determining the correct VAT treatment of certain services received from abroad. Supplies made outside the UK may also be subject to special treatment within your partial exemption calculations see Partial exemption VAT Notice In normal circumstances, VAT cannot be recovered on goods and services bought in to make supplies that are exempt or would be exempt if they were supplied in the UK.

But there are some exceptions to this, as explained in paragraphs 6. Where a UK insurer supplies insurance directly linked to the export of specific goods from the UK, they have an entitlement to recover VAT incurred on the supply of the insurance, even if the customer belongs in the UK. The VAT treatment of insurance supplied by UK businesses and the associated input tax entitlement is therefore as shown in this table.

To use this table you must first establish the place of supply for your services, as explained in paragraphs 6. Risks that are not considered to be MAT insurance include:. The VAT treatment of supplies of insurance and reinsurance in respect of any MAT risk follows the same rules as those set out in paragraph 6.

Due to the nature of MAT insurance, we have agreed guidelines with trade representatives for determining and recording where MAT insurance is supplied for VAT purposes. The trade agreement, summarised in paragraph 6. These are as shown in this table:. You should use this section to determine whether the X or the Z code is appropriate based on the location of the insured party or parties. If no address is shown, then the address of the insured should be determined by reference to the broker or other intermediary who arranged the supply.

If the insured has more than one address, the one on the slip or equivalent document should be used unless it is clear that this is simply an administrative address for payment or similar purposes.

The principal insured may be the only named insured as distinct from the others shown as additional insured parties on the policy, or they may be the first named on the policy. Where the identities of multiple insured parties are known but a principal cannot be identified, the places of belonging of all of the insured parties should be ascertained if practicable and the business coded according to whether the insured parties are all based inside the UK or all outside the UK or some inside and some outside, as outlined in paragraph 6.

Where it is not possible to determine whether the X or Z code is appropriate using the guidelines in this section, then specific transactions may be coded M. You cannot normally deduct input tax incurred on costs that relate to your exempt supplies.

More information on specified supplies and the recovery of VAT can be found in paragraph 6. We will want to see appropriate documentation such as:. If your input tax relates to both taxable including specified and exempt supplies, you can normally only deduct the amount of input tax that relates to your taxable and specified supplies. Methods for recovering the allowable input tax are covered in the Partial Exemption Manual.

These are offices established in the UK by overseas insurance companies. Their purpose is public relations, introducing brokers to the overseas insurer and monitoring and providing information about the UK insurance market.

The contact office itself is not permitted to accept insurance business in the UK and does not normally make supplies in the UK.

The contact office can apply for voluntary registration in the UK and, subject to the normal rules on input tax recovery see VAT guide VAT Notice , recover input tax incurred in the UK in connection with supplies of insurance made outside the UK by the overseas insurer. A VAT-registered contact office may reclaim input tax based on the proportion of supplies made by the overseas insurer as a result of contacts made by the contact office.

It can only recover input tax on supplies on which VAT would have been recoverable had they been supplied from the UK. If the overseas insurer is unable to provide a breakdown of actual supplies made to policyholders, there may be difficulties in determining whether or how much input tax can be recovered. These arrangements do not stop the contact office from applying for an alternative method. The trade agreement covered in paragraph 7.

A tax point is the point at which VAT where due should be accounted for. The tax point is arrived at by determining the time a supply is deemed to have taken place for VAT purposes. Renewable policies covering long-term risks will normally represent continuous supplies of services, in which case the only tax point is the date of receipt of premium. As well as knowing the time of supply for the purpose of partial exemption calculations, it is also important to know the value of your supplies.

The value of supplies of insurance is the total amount due under the contract without deducting any commission due to brokers and agents. This is to prevent the return premiums that are attributable to earlier tax years or periods distorting the ratios of the current tax year or period. Alternatively, to avoid complex calculations, you may apply to use a method whereby a flat-rate recovery percentage is applied to your gross input tax based on the premium income for the last three years of active underwriting.

Each member, whether a company or an individual person underwrites on a several basis and is responsible for their own share of any profits or losses. Members may choose to participate in a number of different syndicates. Each syndicate comprises of either one or more members and is managed by a managing agent. Where a syndicate has 2 or more members providing the capacity, it is the syndicate rather than the member that is registered for VAT as the taxable person in respect of the insurance underwritten by the syndicate.

This is because the syndicate is considered to be an unincorporated body of persons, with any changes in its composition being ignored. Syndicate activities cannot be dealt with through that registration though. Where a syndicate has only 1 member, which in practice only occurs with a corporate member, the syndicate cannot itself be registered.

In effect, the syndicate and the corporate member are the same person. In this circumstance the corporate member must be registered and all syndicate business accounted for under its registration. Where the corporate member is included within a group VAT registration, the group registration is used to account for syndicate business. Managing agents administer the activities of a syndicate on behalf of members but are not themselves insurers.

They may be VAT registered and their supplies are those of an insurance agent see section 9. The VAT treatment follows that of the insurance underwritten by the syndicate or syndicates that they manage.

Normally, the supplier of a service is responsible for accounting for any VAT due to the tax authorities of the country in which the supply is made. But on certain services received from overseas suppliers, it is the customer who must account for any VAT due. Previous legal decisions have recognised that this Directive provides assistance in describing the activities of an insurance agent. To be insurance related, services must be closely related to insurance and not just incidental to it.

This means that services such as secretarial services and general computer services supplied in connection with insurance are not covered by the exemption.

Where taxable services are provided as a minor and ancillary part of a single composite supply of exempt insurance related services, the entire supply will be exempt. More information can be found in section UK law also specifically excludes services supplied in settlement of an insurance claim from the exemption. For more information on insurance claims see section 5.

Introductory services bring together people who want to purchase insurance with an insurer or reinsurer. The exemption also covers work preparatory to the conclusion of a contract of insurance or reinsurance.

It is not necessary for a contract of insurance to be concluded for an introductory service to be performed. If the customer decides not to purchase the insurance, or the insurer decides not to underwrite the risk, any work carried out by the intermediary prior to this point is still exempt. It is sometimes difficult to distinguish between advertising services, which are specifically excluded from exemption see paragraph 8.

To qualify as an insurance related service, a business has to play an active part in the sale of the insurance. For example, if a finance company acts as an agent of an insurer in the sale of loan protection insurance and recommends that insurance to its customers, then returns the completed application forms to the insurer and receives commission on each policy taken out, the company is performing an insurance introductory service and the commission is exempt from VAT. To help businesses determine the correct tax treatment for their services, we accept that an insurance intermediary is providing introductory services where they are playing an active part in the sale of the insurance and the following 3 criteria are met:.

These criteria should be used only to determine the tax treatment in cases where it is unclear whether the service supplied is an advertising service or an insurance introductory service.

In other instances, they may be an indicator toward something being an introductory service but they will not necessarily be determinative. Generally speaking, assisting in the administration and performance of contracts of insurance is seen as covering the services that insurance intermediaries perform in connection with the day-to-day administration of policies. For example, maintaining up to date details of policyholders and dealing with requests from policyholders for changes to cover.

It is often, but not always, the case that the intermediary who arranged the original contract of insurance will perform these services and also handle any claims that may arise. UK courts have found that the definition of assisting in the administration and performance of contracts of insurance goes wider than the day-to day administration work and includes, for example, pension review services and certain kinds of helpline services.

More information on these services can be found in paragraphs Such services may include, for example, a combination of the following:. The supply of claims handling may also include a number of elements of an advisory, investigative, or administrative nature that would be subject to VAT if supplied in isolation.

Where these elements form a minor and ancillary part of a single composite supply of claims handling, the entire supply will be exempt from VAT. Section 11 provides more information on insurance related services supplied with other services or goods.

Paragraph 9. Where a separate charge is made for these services, it will be exempt from VAT. If your premium collection services are not supplied in connection with other insurance intermediary services, they will not be insurance related and may be liable to VAT.

An example of this would be the services of a debt-collector collecting overdue premiums for an insurer. The VAT Act Schedule 9 Group 2 item 4 exempts insurance related services performed by insurance brokers and insurance agents when acting in an intermediary capacity.

Generally speaking, the kind of services covered by the exemption are those that are traditionally carried out by insurance brokers or agents that is, arranging insurance contracts and performing related follow up services such as amendments to cover and claims handling.

It does not follow though that everything you do will be exempt insurance services, any services you supply which are not closely related to insurance will fall outside the insurance exemption although they may qualify for exemption elsewhere.

Whilst there is little difference in the kind of work carried out by a broker and the work carried out by a professional insurance agent, the following distinction can generally be drawn. As well as traditional brokers and agents, other intermediaries sell either insurance or supply services, or both, connected to insurance in other ways.

We do not, therefore, restrict the exemption to those who are insurance brokers and agents by profession but allow exemption for other intermediaries supplying services akin to those of traditional brokers and agents.

Such businesses will probably not be supplying only insurance related services and it is likely that the supply of insurance services will not be their main business activity. Insurance related services are often supplied by businesses such as estate agents and solicitors in connection with their principal business activities.

Many retailers arrange insurance in connection with the goods they are selling, for example, extended warranties on electrical items or breakdown cover on cars. To be acting in an intermediary capacity a business will be acting somewhere in the chain of supply of a contract of insurance. This does not necessarily mean they will have direct contact with the insurer or the insured party because there can be more than one intermediary in a chain.

It does mean that at one end of the chain there will be a business which has direct contact with the insured party or potential insured party and at the other end there will be a business which has direct contact with the insurer. It does not follow that because a business acts in an intermediary capacity in respect of one supply it will be acting in an intermediary capacity in respect of another.

For example, in addition to arranging insurance contracts, a broker may supply a service to an insurer that involves no contact either direct or indirect with insured parties. This service will not qualify for exemption as an insurance related service. For your services to qualify for exemption, all of the following conditions must be met:. This means that the services of anybody who is contracted by insurers to assess or value insurance claims because of their expertise in a particular field are excluded from the exemption.

This could, for example, include people such as:. Where these people are also contracted to handle insurance claims, and the conditions outlined in paragraph 9. If an insurer gives written authority to another person such as a broker who in turn issues written authority to you, your services will still be exempt provided that the original authority from the insurer gave the original recipient power to delegate the authority in this way. The written authority should allow you to investigate claims, perform any service necessary for the claim to be settled and agree the amount of a claim or cost of repairs or replacement without reference to the insurer.

The authority may also include avoiding or repudiating claims. In all circumstances it must bind the insurance company to pay the amount of a claim or meet the cost of repair or replacement as determined by you. In some cases, you may only be delegated authority up to a certain monetary limit or only in respect of specific types of claim. Where your taxable valuation or assessment services, or both, are ancillary to a principal supply of claims handling the whole supply will be exempt from VAT.

More information on insurance services and related services supplied with either other services or goods, or both can be found in sections 4 and The guidance given in section 8 and section 9 should be enough in most circumstances to allow you to determine whether something is or is not within the exemption as an insurance related service.

There are some areas where the nature of the supply or supplier, or both, could lead to uncertainty and this section gives guidance on some areas where we know difficulty may occur. Their functions can be broadly divided into the following categories:. Managers predominantly supplying the general management services in the fourth bullet point will be liable to charge VAT at the standard rate. If an agent supplies the services listed in paragraph In the past, we accepted, following the Court of Appeal decision in the case of Century Life Plc, that mis-selling reviews for insurance based pensions and other insurance products were exempt from VAT as long as the reviewer:.

Our previous treatment did not exempt the supply of Payment Protection Insurance PPI mis-selling reviews — PPI reviews have always been treated as taxable as they are carried out on behalf of lenders rather than insurers. But if helpline services are provided as part of a single supply and the main focus or predominant nature of that supply is exempt insurance related services see section 9 , the supply will be exempt.

In the past, HMRC accepted that exemption applied to stand alone helpline services supplied by third parties to insurers for onward supply to the insured party if the helpline provided assistance to insured parties on matters such as variations of contract and the making of claims. We treated helpline services as taxable if the helpline covered matters that were only incidental to the supply of insurance for example, where a legal helpline gives advice to insured parties on legal matters generally but does not advise on matters specific to the contract of insurance itself, such as scope of cover or claims procedures.

Suppliers of helpline services can rely on our previous treatment for supplies made before 1 April This will apply regardless of whether the call centre service provider is remunerated by way of commission or flat rate fee. The insurance industry is increasingly making use of the internet as a means of facilitating insurance transactions. There are any number of ways in which the internet can be used in connection with insurance, and the liability of supplies of internet services to insurers or possibly to insured or prospective insured parties will need to be considered on their own merits using the guidance laid out in section 8 and section 9.

Factors indicating that a supply of internet services is exempt as a supply of insurance related services include:. For more information about run-off business generally see paragraph 3. An insurer will often appoint a third party to administer the run-off of insurance contracts on its behalf. The sort of services supplied could include:. A composite supply of such run-off services will fall within the VAT exemption as insurance related services. Separate supplies of administrative services such as accountancy, supplies of staff and management of invested premiums do not qualify for exemption and are liable to VAT when supplied in the UK.

Paragraph 3. Life assurance backed broker managed funds are provided under contract between the life company that operates the fund, the policyholder and the broker who arranges the policy.