A win for Hastings Insurance Service Ltd in the VAT tribunal might unlock significant input VAT savings for other UK insurance intermediaries.
A wealth of UK VAT case-law involves UK taxpayers using the direct effect of EU VAT law to create VAT savings for themselves where UK VAT law is found not to be EU-compliant. The recent First-tier Tribunal (‘FtT’) decision in favour of Hastings has confirmed that to be the case again, generating over £16m in input VAT savings on its expenditure.
The crux of the case was, where a UK-based insurance broker receives commissions from an offshore insurer (which in Hastings’ case was a group company insurer based in Gibraltar), whether the term “customer” in EU VAT law means the broker’s immediate customer (ie the insurer) or the ultimate insured parties (which in Hastings’ case were in the UK). The FtT decided that EU VAT law (which had direct effect in the UK until 31 December 2023) meant that Hastings could take the view that its insurance intermediary services were supplied to its Gibraltar insurer, thus unlocking over £16m of input VAT recovery on associated expenditure for Hastings.
Can UK brokers just get input VAT refunds from HMRC if they have similar fact patterns to Hastings?
- Any UK insurers who have complied with UK VAT law and restricted input VAT recovery on expenditure in the past four years relating to services supplied to non-UK insurers supplying insurance to UK insured parties (ie Hastings’ fact-pattern) should urgently consider lodging retrospective input VAT recovery claims to HMRC off of the back of the FtT’s recent decision. However, it is worth noting that:
- FtT decisions are not binding on any other taxpayers; only a decision of the Upper Tribunal or a higher court creates a binding precedent that other taxpayers can apply to themselves.
- HMRC has lost to Hastings before (in January 2018 where HMRC used a different argument) and although HMRC did not formally appeal that decision, we are aware that some HMRC officers still disagree with it. HMRC may also disagree with the most recent Hastings FtT decision and make any other UK intermediaries that file retrospective input VAT recovery claims applying these findings also take those claims to Tribunal to secure their VAT refunds, hoping that a differently constituted Tribunal panel might find in favour of HMRC in respect of another UK intermediary.
- Alternatively, HMRC may feel confident enough about their ultimate chances of success to appeal the FtT’s most recent decision to the Upper Tribunal and beyond.
- Any input VAT repayment claims made to HMRC now should only be able to go back four years (depending upon the broker’s VAT return periods) and run up to 31 December 2023 (when EU VAT law stopped having direct effect in the UK).
Whatever happens with the recent Hastings FtT decision, UK brokers should urgently consider (if they have not already done so) lodging claims to HMRC for recovery from HMRC of input VAT incurred on historic expenditure that relates to services supplied to non-UK insurers selling insurance to UK insured parties. Although it may take some time for the factors above to be fully ironed out (for example, should HMRC appeal the case to the Upper Tribunal) claims need to be made within the four-year window to be valid, and delaying will mean that those earlier periods will drop out of time.
What about input VAT already claimed?
Many intermediaries will have reclaimed input VAT only in respect of expenditure relating to services that relate to non-UK insured parties, in accordance with the general understanding of UK VAT law at the time. Such claims should be unaffected by this case, and so long as correctly accounted for, should not be subject to challenge.
