As part of the pre-budget report on 5 December 2005, HMRC issued a Business Brief. A section of this brief announces that having considered responses to their Consultation on VAT and insurance-related services following the ECJ judgment in Arthur Andersen & Co Accountants the UK will await a review of the VAT treatment of financial services to be carried out by the European Commission in 2006.
This is a welcome development for the insurance industry, which had been concerned that the imposition of irrecoverable VAT could seriously affect the efficient structuring of operations in the UK. In the recent case of Abbey National on the scope of the VAT exemption on fund management, the Advocate –General has already noted that adverse build up of irrecoverable VAT should not be a consequence of the VAT system.
We understand that the UK will review the position again next September, with a view to implementation of the Andersen decision, unless the EU review starts to make useful progress in defining the scope of the VAT exemption in the insurance sector
What You Should Be Doing Now
Existing deals: Monitor developments
For material insurance transactions, many insurers undertook a strategic examination of their options going forwards. As a result of the delay these arrangements need not be implemented for VAT purposes until and unless specific proposals come more closely into view. At such time, CMS Cameron McKenna can help you determine your best way forwards, including prepayment, restructuring, and insourcing.
New deals: Insure against the future?
The insurance sector specialises in risk, and accordingly we are advising those entering new deals to consider whether these could be written with the implementation of the Andersen changes in mind. Unless all the Member States agree to changes in the VAT Directive then we will have to live with the current law and how it has been defined by the courts. It is advisable to structure arrangements where possible so that they would be "Andersen" friendly, so insulating you from the possible need in the future to make provisions on your P&L accounts and pay potentially large sums to the tax man unnecessarily.
Continue to lobby
CMS Cameron McKenna have been assisting the ABI and others in their representations, as well as acting for Abbey National in the fund management case, where we argued that imposition of tax on funds would have the effect of causing capital to move outside the EU, particularly to Switzerland.
We believe this is a useful time for lobbying the Commission, for example to extend the VAT exemption to cover core insurance activity including outsourced administration and claims handling.
Contact us to help continue to make VAT savings
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 15/12/2005.