The First Tier Tax Tribunal ruled on 11 March 2013 that organisers of broker clubs, which help member brokers gain access to better terms with larger insurers, must charge full UK VAT at 20%.
Westinsure acts as service promoter for small brokers
Westinsure Group provides a paid-for membership service for smaller brokers through its online brokerage system. Services include:
– Negotiating with insurers to secure improved rates of commission, product range and services
– Reduced premium charges
– Negotiating with businesses which provide premium instalment finance to achieve improved finance rates
– Regular seminars and direct visits for brokers to learn about new opportunities
– Negotiating improved terms with the Chartered Insurance Institute for products and services
For the above services, brokers pay an annual membership fee.
HMRC questions VAT liability
Westinsure took the view that it was providing the services of a broker or agent, which are exempt from UK VAT at 20%. However, HMRC challenged this. Their view was that this was simply a marketing and promotion service. In 2011, it issued a ruling that Westinsure should have been charging VAT since 2005.
First Tier Tribunal backs HMRC
The FTT reviewed this question of whether Westinsure was providing brokerage or promotional services. It ruled that Westinsure was in fact too far removed from individual insurance agreements, and that their services are closer to support services.
Richard Asquith, Head of VAT & IPT, TMF Group commented
This case shows how closely the tax authorities are scrutinising services in support of brokers, and that they are looking to close off the VAT exemption. We can expect more of these cases as HMRC probes the limits, and looks to raise fresh revenues for the pressured Exchequer.
