HMRC have published a draft proposal to amend the legislation that currently allows insurance and financial intermediaries to recover input VAT where services are provided to financial services providers based outside the EU. Insurance and financial intermediary services are VAT exempt so don’t normally allow for VAT recovery, however the current VAT law allows VAT recovery where the services are provided to bodies which are based outside the EU (e.g. Channel Islands, Switzerland).
Change in law
HMRC’s proposed amendment will in future deny such VAT recovery where the customers who are the eventual recipients of the Non-EU financial services provider’s own supplies are located within the UK.
Consequently, any insurance brokers and financial intermediaries which earn commission or fees from Non-EU financial services providers will be denied VAT recovery where the underlying customers are in the UK.
If your business provides insurance or financial intermediary services to financial services providers who belong outside the EU, and those providers in turn provide VAT exempt insurance or financial services to customers in the UK, you will no longer be able to reclaim input VAT in relation to these intermediary services from the date the law is introduced (which is likely to be before the end of the year).
Some financial intermediary businesses may not be VAT registered so this will not be an issue but the ones that are should check their positions.
If you have a query about this VAT change, please contact Iain Masterton, Chiene + Tait’s Director of VAT at email@example.com or call 0131 558 5800.