HM Revenue and Customs (HMRC) have recently taken a swipe at websites which pass on enquiries to the websites of companies which engage in the selling of insurance.
Insurance contracts are exempt from VAT, but HMRC argued that the service provided by a referral website was too remote from the formation of the contract for the business to be considered as an insurance broker or agent and that the sales income from the referral website was not therefore exempt from VAT.
The case went all the way to the Court of Appeal, which ruled in favour of the business making the introductions. The Court held that in order to benefit from exemption from VAT, the trade had to exhibit ‘the characteristic functions of an agent or broker’.
Four important aspects of the Court’s ruling stand out:
- The first is that the introduction site in this case offered more than just a ‘click through’ facility. If it had not, the income would have been classed as advertising and not exempt;
- Secondly, the site was part of a chain, the effect of which was to bring together insurance companies and those seeking to take out contracts of insurance;
- Thirdly, although the exemption from VAT had to be interpreted strictly, this did not mean that it had a particularly narrow or restrictive definition;
- Lastly, whether or not a taxable person is an insurance broker or agent does not depend on what they call themselves, but on what they actually do.
The ruling raises the interesting question of what would occur if the website widened its range of referrals to include non-exempt activities. No doubt a case will appear in the fullness of time which addresses this issue.