No VAT exemption for outsourced settlement of insurance claims
March 24, 2016
The ECJ has held that the activity of a Taxpayer which performs all the functions necessary for dealing with insurance claims, from receipt of the claim form to repairing the damage and dealing with any post-repair complaints, constitutes neither an insurance activity nor the activity of an insurance broker or intermediary. Consequently, the Taxpayer's activity is not within the scope of the VAT exemption for insurance services.
Ben Flockton, indirect tax insurance partner comments:
"The insurance intermediary exemption under UK legislation has generally been interpreted on a broader basis than in other EU Member States. In the UK, claims handling services are currently capable of exemption, so long as the services are being provided in an intermediary capacity. In practical terms, this means that the claims handler must interact with both the insured and the insurer to fall within the insurance intermediary exemption.
The potential impact of this recent case could mean that the UK may come under increased pressure from the EU Commission to revise its interpretation of the insurance exemption, and to bring it in line with EU law.
Any business that has outsourcing arrangements in respect of claims handling services or insurance administration services may wish to review its position to ascertain the potential impact and whether the services fall, in full or in part, under any other VAT exemption, such as those for financial services.
Other points to consider are that the Court focuses on the fact that the claims activity is undertaken in a way that is divorced from the finding of prospective clients and introducing them to the insurer. This potentially leaves open questions around whether these functions would be properly exempt if provided by an agent that was also involved in placing the business and around single v multiple supplies."
If you have any questions please do no hesitate to contact Ben, myself, or your usual PwC VAT contact.
p: +44 020 721 31023
p: +44 016 124 52429