VATINS5210 - Services of an insurance intermediary: insurance brokers and insurance agents: Insurance intermediation for periods prior to 2024

From 1 January 2024, it will no longer be possible for any part of any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it was incompatible with EU law. This will mean that businesses will no longer be able to rely on direct effect of EU Law.

As a consequence, the relevant guidance for insurance intermediation for periods following the 1 of January 2024 is found within this manual at: VATINS5220.

For periods prior to January 2024, taxpayers may choose to rely on CJEU case law, as set out below.

The Andersen case concerned the VAT liability of certain ‘back office’ services supplied by Arthur Andersen to an insurance company. These services included the issuing, management and cancellation of policies, the management of claims and, in most cases, taking decisions that bound the insurer to enter into insurance contracts.

The CJEU was asked whether these services qualified for exemption under Article 13 B (a) (now Article 135 1 (a) of the Principal VAT Directive), as ‘related services performed by insurance brokers and insurance agents’. To fall within the exemption Andersen had to qualify as either a broker or an agent.

The CJEU held that the essential characteristic of insurance brokers was that they had complete freedom of choice of insurer for their client. Andersen did not work on behalf of an insured party, but rather for a single insurance company, therefore it could not qualify as a broker.

The Court further held that an insurance agent, while usually tied to a particular insurer, must be instrumental in bringing together the two parties to the insurance contract by finding prospective clients and introducing them to the insurer. Andersen did not perform any type of introductory service and therefore could not qualify as an agent. The fact that they were able to bind the insurer was not a determining factor. The Court therefore decided that Andersen did not fall within the exemption.

Consequently, some services which fall within the UK exemption at Item 4, for example claims handling or the administration of contracts of insurance provided separately from introductory services, can be treated as outside of the exemption and therefore taxable, in the event that a business wishes to apply ‘direct effect’ of EU law. This does not apply to periods following the 1 of January 2024.