Westinsure: A gatekeeper locked out on the wrong side of the gate

The taxpayer has lost its appeal at the Upper Tribunal, with the result that its membership fees charged to its insurance broker subscribers are taxable at the standard rate.

This case is important because the reasoning provides a summary of significant clarity on the application of the insurance intermediation exemption. Although not overtly covered in the case, concerns have been raised as to whether the current VAT exemption for wholesale broker activities is in anyway at risk.

There has been no comment as yet from HM Revenue & Customs (HMRC), but to help you decide if this case affects you, some of the key distinguishing points are listed below.

Why Westinsure fell short of exemption

• Westinsure was not an insurance broker or an insurance agent.

• Most of the services from the subscription paid by Westinsure brokers to Westinsure were solely for the benefit of the broker – it was providing support services (including minimum business requirements, enhanced commission, business development advice and FCA compliance), but without a specific type or class of policyholder in mind.

• Westinsure had no direct relationship with the policyholder – it was not in the intermediation chain for each policy sold. In effect it was the gate-keeper to its own facility which it built and controlled, and ventured no further towards the policyholder (because it could not impinge on the existing relationship with the broker).

Why wholesale brokers should remain VAT-exempt

• They are insurance brokers.

• Their products are designed with particular customers/markets in mind i.e. they are responsive to customer / market requirements.

• They receive commission that has a direct nexus with individual policies taken out.

• Sub/retail brokers use wholesale brokers to place niche business with specialist carriers on behalf of specific clients.

If you have characteristics of both, then you should look out for any Revenue Brief’s issued by HMRC. We will comment on this if and when it is issued. In the meantime, if you would like to discuss this matter with our insurance VAT expert, please contact Nick Warner on 020 7651 1657 or email him at nick.warner@moorestephens.com.

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Nick Warner

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