Note clarifies rules on liability for online insurance introductory services

HM Revenue and Customs has confirmed that it has given up its long-running fight to make aggregators pay VAT.

A guidance note issued by HMRC says it will not pursue its action against the now defunct comparison site InsuranceWide and the Trader Media Group, which runs the Auto Trader website.

In April, the Court of Appeal ruled against HMRC and in favour of Trader Media Group and

The action centred on whether non-brokers providing online insurance introductory services should be VAT exempt.

The note says that comparison sites should be considered as VAT exempt. HMRC has also issued new guidance to help the industry understand the rules to determine whether VAT is liable or not.

Richard Asquith of accountants TMF said “This brings to an end a long battle HMRC was waging on comparison sites. Given the conflict with EU legislation, it was never clear that it would win. It now confirms that comparison sites do not need to charge their customers VAT as an exempt service.

“Any comparison site may be able to recover VAT that it has suffered – and this has a three year cap.”

“However, there may be an unexpected nasty consequence for some insurers with service agreements with introductory websites. These agreements often include a clause that puts the liability for any unrecoverable VAT onto the insurer. Since the comparison sites are now confirmed as exempt, and therefore cannot reclaim their input VAT, this bill may switch to the insurer under these clauses. The insurers trapped in this situation may wish to require the comparison site to force through a repayment claim to take the sting out of this liability.”