VAT on insurance and outsourcing services

Introduction date

TBA

Summary

Following an ECJ judgment in March 2005, it became highly likely that the UK Government would have to impose on insurers an additional 17.5% charge on the cost of a range of outsourced activities.

HM Revenue and Customs consulted (to Sept 2005) on the way in which the effect of the judgment is to be implemented, and a summary of responses to the consultation has been published.

Outsourcing will be impacted in relation to claims handling, policy administration and other areas; the potential loss of VAT exemption is very wide.

New rules were due in late 2006, but all changes to national legislation throughout the EU, for both the financial and insurance exemptions, have been put on hold pending the European Commission's review of VAT and financial services (see below).