Court rules that non-brokers qualify for VAT exemption

The Court of Appeal has unanimously confirmed that non-brokers providing online insurance introductory services qualify for exemption from VAT.

The appeal, brought by HM Revenue & Customs (HMRC), was against Autotrader publisher Trader Media Group and Insurancewide.com.

Both businesses used websites to introduce potential customers to insurers, with a view to them purchasing an insurance policy. And both businesses received commissions which are payable when a customer purchases an insurance policy.

During the litigation, HMRC argued that Insurancewide.com and Trader Media were not insurance agents or brokers. HMRC tried to distinguish pure ‘introducers’ from ‘traditional’ insurance intermediaries on the basis that they did not play any role in negotiating the terms of the insurance contracts, i.e. that they were merely ‘click through’ facilities.

In Trader Media’s case, the insurance quotation page was co-branded with Comparethemarket.com and HMRC saw Trader Media’s role as being akin to an advertiser and so taxable at the standard rate.

However, the Court of Appeal found unanimously that:

• Whether or not a person is an ‘insurance broker’ or ‘insurance agent’ depends on what they do, not how they choose to describe themselves;
• An ‘insurance broker’ and ‘insurance agent’ must be engaged in the business of putting insurance companies in touch with potential clients, or more generally, be acting as an intermediary between insurance companies and clients or potential clients.
• To gain exemption, it is not necessary to carry out all the functions of an insurance agent or broker. It is enough if a person is one of a chain or persons bringing together an insurance company and a potentially insured and carrying out vital intermediary functions, so long as the services which that person performs are in themselves, characteristic of the services of an insurance agent or broker.

David Fownes, a director in the financial services practice at Deloitte, who advised Trader Media Group, said: “For the third time in this case, a UK court has found that a business that introduces customers to providers of insurance, in an online environment, is a broker or agent supplying insurance intermediary services. This means that Trader Media’s commission income, is exempt from VAT.”

Media and Internet businesses which earn commission income from introducing customers to insurers will find this judgement of particular interest. Affected businesses that have previously accounted for VAT on their commission income may be due a repayment of VAT.