VAT exemption for insurance introduction services

A recent decision at the Court of Appeal (Trader Media Group) may affect insurance related commissions received by legal firms.

In this case the Court found that an online introducer of customers to insurance providers was an agent supplying insurance intermediary services which are VAT exempt. The taxpayer was paid a commission each time a customer took out a policy. Although the taxpayer in this case did more than a "click through" (they had collaborative arrangements with intermediaries) it demonstrates that it is not necessary to act as an insurance agent in the traditional sense, to have VAT exempt commissions.

This will affect firms receiving commissions relating to insurance products who may have incorrectly charged VAT. Whilst there is an opportunity to recover overpaid VAT this may need to be passed back to their insurance customer. It will also open up discussions about future contract values and there may be renegotiation by insurance companies about the level of commissions that will be paid in future.

Please note that exempt income must be taken into account by businesses and the partial exemption position must be reviewed to ensure that VAT recovery on costs is not restricted.

Legal firms may not realise that they have VAT exempt income and the implications that this has.

VAT changes 1/1/10

Legal firms will be aware of the VAT changes that came in on 1 January 2010 in relation to services sold to and purchased from businesses outside the UK. It means that an extra level of compliance has been added to ensure that cross border transactions are reported on an European Sales List and that invoices comply with the changes.

Contact us

To check that your firm is VAT package compliant and prevent penalties being incurred in the future please contact Alison Horner, VAT Director on 01604 624011 or alison.horner@mhllp.co.uk.